SEBI Unveils Liquidity Push as Indian Corporate Bond Market Reaches Rs 61 Lakh Crore

India's corporate bond market has expanded more than threefold over the past decade, surging from around Rs 20 lakh crore in FY 2015-16 to approximately Rs 61 lakh crore. However, the Securities and Exchange Board of India (SEBI) is now shifting regulatory priorities from simply accelerating corporate debt issuance to building genuine secondary-market liquidity and infrastructure depth.

Speaking at the 11th J.P. Morgan India Conference, SEBI Chairman Tuhin Kanta Pandey stated that building an efficient debt market requires looking beyond gross issuance volumes. While Indian corporates have already raised more than Rs 4.3 lakh crore via corporate debt in the current financial year (FY27), secondary trading has long been hobbled by an institutional "hold-to-maturity" culture and a narrow institutional base.

Tackling the Hold-to-Maturity Bottleneck

Historically, institutional participants such as insurance companies, provident funds, and pension managers have absorbed primary bond issuances and locked them away until maturity, leaving the secondary debt market dry.

To overcome this, SEBI is prioritizing an actionable market-making framework to incentivize continuous two-way quoting and bridge liquidity mismatches between buyers and sellers. The initiative also encompasses expanded repo access for corporate bonds, facilitating short-term financing against corporate debt collateral.

In addition, SEBI is coordinating with the Reserve Bank of India (RBI) to allow corporate bond indices to be actively traded on domestic stock exchanges. The RBI has provided draft guidelines, paving the way for index-based debt derivatives and structured products that can offer hedging tools and diversify trading strategies beyond individual securities.

Widening the Distribution Net

Retail participation in corporate bonds has historically lagged equity market adoption due to institutional ticket sizes and over-the-counter dominance. The regulator has already lowered the face-value investment floor to Rs 10,000 and nurtured regulated Online Bond Platform Providers (OBPPs) to deliver debt inventory directly to individual investors.

Key initiatives currently on SEBI's debt development roadmap:

• Market-Making Framework: Introducing dedicated liquidity providers with access to repo funding and clear quoting obligations to narrow bid-ask spreads.
• Exchange-Traded Bond Indices: Collaborating with the RBI to permit trading of corporate debt indices on stock exchanges, enabling index-linked investment and hedging.
• Fixed Income Channel Partners: Finalizing a framework to permit intermediaries to distribute corporate debt products through regulated online bond platforms.
• Credit Risk-o-Meter: Establishing an intuitive visual risk-profiling metric to help retail investors gauge credit and default risks of specific debt securities.
• Demat 2.0 Pilot: Deploying private, permissioned distributed-ledger technology (DLT) for corporate bond tokenisation in partnership with depositories and state-backed entities like REC.
• Operational Ease for Issuers: Easing compliance by proposing the removal of mandatory listing requirements for outstanding unlisted non-convertible debentures (NCDs) when entities seek to list newer series.

Significance for Corporate Borrowers and Investors

For India Inc., a liquid secondary bond market provides reliable benchmark yield curves, enabling corporate treasuries to issue debt at more competitive pricing rather than remaining reliant solely on commercial bank credit.

For mutual funds, retail participants, and wealth managers, stronger secondary liquidity removes exit frictions, allowing market participants to liquidate high-grade corporate bonds without triggering punitive slippage. As domestic household savings migrate into market-linked instruments, SEBI's push is designed to ensure India's fixed-income ecosystem matches the scale and sophistication of its Rs 100-lakh-crore primary capital markets.

Tags: SEBI Corporate Bonds Reserve Bank of India Debt Capital Markets Online Bond Platforms