Amarendra Acharya*
The current study is an attempt to plug the gap in literature on corporate debt market in
India. The approaches to deal with issues are both analytical and empirical. The progress made
on the recommendations of R. H. Patil Committee on corporate bond and securitisation has
been delineated exclusively as a sequel to the analysis of issues on this segment of the financial
market. Empirical verification of monetary policy transmission through SVAR, volatility
spillover through VECH (1,1) confirms that this segment responds to monetary policy in deficit
liquidity conditions, and is insulated from overseas influences.
JEL Classification : D53, O16
Keywords : Risk pricing, Structural Vector Auto regression, Volatility spillover
Introduction
A well developed corporate bond market supports economic
development. It provides an alternative source of finance and supplements
the banking system to meet the requirements of the corporate sector to
raise funds for long-term investment. It is believed that this segment
acts as a stable source of finance when the equity market is volatile, and
also enables firms to tailor their asset and liability profiles to reduce
the risk of maturity. It also helps in the diversification of risks in the
system. In view of huge investment requirement for infrastructure
sector, the presence of a well developed corporate bond market assumes
significance in India. With the declining role of development finance
institutions (DFIs), a developed and robust corporate bond market
becomes all the more important.
Corporate bond market is likely to be more beneficial for business
having longer term cash flows, where investors may be wary of risks
associated with equity and long-term financing from banks may not be
easily available [Report on High level committee on corporate bond
and securitisation (2005), Singh (2011), Khanna and Varottil (2012)].
Experts argue that India’s high growth can be sustained by improving
infrastructure and expanding the manufacturing base, and a developed
corporate bond market can make both the tasks easier. Furthermore,
India is in need of US$1 trillion in the current five year plan for
financing its infrastructure. The Bank dominated financial system is
unlikely to finance such a high amount; in this context, recourse to the
corporate bond market can be helpful (Mukherjee 2013). In India, while
the banks still command a sizable presence in the economy, corporate
sector is taking recourse to the overseas markets for raising equity, debt
and loans. An underdeveloped corporate bond market can abet this
trend, thereby increasing the external sector vulnerability. Fortunately,
the presence of a big private sector, deregulated interest rates, well
developed government securities market, highly developed clearing and
settlement system, credible rating agencies, and supporting regulatory
structure bode well for the development of the corporate bond market
in India.
Corporate bond enhances the risk pooling and risk sharing
opportunities for investors and borrowers. Reddy (2002) highlights
the argument of Allan Greenspan that ‘co-existence of domestic bond
market and banking system help each to act as a backstop for the
other’, and alludes to that ‘in a relatively open economy since non-bank
intermediation may get located outside the country… the domestic bond
market helps in avoiding double mismatches of currency and maturity’.
Khan (2012) opines “the capital flows to the country through External
Commercial Borrowings (ECBs), while helping the country fund the
current account deficits and corporate raise resources at a lower cost,
could also become a source of transmission of severe external shocks
to the domestic economy”. In fact, he also highlighted Greenspan’s
view that bond market act as a ‘spare tyre’, and it can provide corporate
funding at times when banks ration credit in the face of week balance
sheet.
The development of corporate bond market has been a priority in
the policy hierarchy for the last few years. The existing literature largely focuses either on developing this segment of market by reducing the
transaction/trading costs involved or identifying an appropriate legal
framework. But this paper has gone further to identify factors that
influence the movement of the yield in this market. Furthermore, its
response to monetary policy, the risk pricing potential of this segment,
and its integration with overseas markets have also been examined.
Besides these issues, the present study is as follows: Section II reviews the
literature on the subject; Section III describes the depth of the domestic
corporate bond market vis-a-vis that of other countries; Section IV briefly explains the structure of corporate bond market in India; Section
V explores the issues and challenges being faced by this segment of the
financial market; Section VI makes an appraisal of the progress made
on the key recommendations made by R.H.Patil Committee to develop
this market; Section VII undertakes empirical analysis and discusses the
results in detail; and Section VIII concludes the study.
Section II
Literature Review
Over the last few years, there have been many studies on the
development of corporate bond market in India. While a number of
studies analysed the reasons for the non-development of this segment
and suggest various ways to reduce the cost of doing transactions, other
studies focused on the legal requirements for the development of this
market. Some of the relevant papers are outlined below.
Eichengreen (2004) documents how the slow development of Asian
bond markets is a phenomenon in multiple dimensions. He finds that
larger country size, stronger institutions, less volatile exchange rates,
and more competitive banking sectors tend to be positively associated
with bond market capitalisation. However, in case of Asian economies,
strong fiscal balances have not been conducive to the growth of
government bond markets. Empirically, he shows that Asian countries’
structural characteristics, macroeconomic and financial policies account
fully for difference in bond market development between Asia and the
rest of the world.
Goswami and Sharma (2011) argue that development of local debt
markets in Asia is facing obstacles from the Asian economies’ dependence
on the banking system, lack of minimum critical mass of corporate bond
market to generate interest in bond issuance. The presence of developed equity markets, comfortable liquidity with the banks and corporations
generate inertia, and constrain the development of local debt market.
This paper suggests that integrated regional market for local currency
bonds can address the issue of critical mass in local debt market.
Sharma and Sinha (2006) highlighting the limitations of reasonably
regulated, supervised, capitalised and managed banking system, outline
some of the preconditions necessary for the development of India’s
corporate bond market. They also reveal that same set of institutions
act as issuers and investors of corporate bonds in India. However, they
see immense potential for securitisation market in India.
Shah, Thomas and Gorham (2008) examine products, market
mechanisms, and some other policy issues in the development of
corporate bond market in India. They analyse the development of
products ranging from state government bonds and PSU bonds to
bonds issued by private firms and structured debt products. This paper
highlights how the two-fold restrictions, both on buyers as well as on
the sellers, are becoming obstacles in the creation of a vibrant corporate
bond market. It also describes that the quality of available information
on defaults on corporate bond market has actually worsened in
recent years, and calls for strengthening the creditors’ rights for the
development of India’s corporate bond market.
Sundaresan (2006) focuses on the need to make structural reforms
in the areas of bankruptcy codes, legal contract enforcement, corporate
governance and investor protection for the development of corporate
bond market in India. It has touched upon the importance of transparency
and efficient price discovery process for the development of corporate
bond market in India. It also underscores the issue of existence of a
reliable and liquid government benchmark yield curve for signalling
to the corporate borrower the cost of risk-free borrowing at different
maturities.
Section III
Cross-country experience
A cross country analysis shows that the domestic debt securities
outstanding is very high (as a proportion of GDP) in case of the USA,
Italy, Japan and Korea (more than 100 per cent). The relative size has
increased in recent years in almost all the developed countries which
have faced the crisis. However, the size of domestic debt market is low
in India and China. Despite the crisis, when all countries went for fiscal stimulus and monetary easing, the ratio has remained mostly stable in
India and China. The size of outstanding corporate securities (by FIs
and corporate issuers) to GDP is high in the USA, South Korea and
Italy. This is very low for India. Among the developed countries, the
UK is having a very low ratio. However, in case of China, this has
increased from a low of 13 per cent in 2005 to 25 per cent by 2011
(Table 1, 1a and 1b).
Table 1: Relative Size of Outstanding Domestic Debt Securities to GDP |
(in per cent) |
Year-end |
US |
China |
Germany |
India |
Italy |
Japan |
South Korea |
UK |
2005 |
164 |
40 |
70 |
35 |
121 |
183 |
100 |
44 |
2006 |
161 |
44 |
77 |
36 |
136 |
193 |
103 |
50 |
2007 |
166 |
48 |
79 |
40 |
142 |
203 |
103 |
48 |
2008 |
172 |
49 |
71 |
34 |
141 |
228 |
93 |
46 |
2009 |
183 |
51 |
85 |
48 |
151 |
229 |
128 |
71 |
2010 |
178 |
51 |
79 |
43 |
145 |
250 |
109 |
73 |
2011 |
175 |
46 |
70 |
33 |
140 |
255 |
103 |
72 |
Source: World Economic Outlook and BIS |
Table 1a: Size of Outstanding Debt Securities of FIs and
Corporate Issuers relative to GDP |
(in per cent) |
Year-end |
US |
China |
Germany |
India |
Italy |
Japan |
South Korea |
UK |
2005 |
116 |
13 |
31 |
1 |
47 |
39 |
55 |
14 |
2006 |
114 |
15 |
35 |
2 |
54 |
38 |
58 |
16 |
2007 |
119 |
16 |
37 |
4 |
59 |
39 |
58 |
16 |
2008 |
117 |
18 |
34 |
3 |
63 |
40 |
56 |
15 |
2009 |
110 |
22 |
38 |
6 |
58 |
37 |
77 |
16 |
2010 |
96 |
24 |
27 |
6 |
52 |
38 |
63 |
14 |
2011 |
89 |
25 |
22 |
5 |
51 |
37 |
58 |
11 |
Source: World Economic Outlook and BIS |
Table1b: Size of Outstanding Debt securities of Corporate
Issuers relative to GDP |
(in percent) |
Year-end |
US |
China |
Germany |
India |
Italy |
Japan |
South Korea |
UK |
2005 |
21 |
2 |
4 |
0.5 |
13 |
15 |
30 |
1.0 |
2006 |
21 |
3 |
5 |
0.6 |
15 |
15 |
27 |
0.9 |
2007 |
21 |
3 |
6 |
0.9 |
15 |
17 |
22 |
0.8 |
2008 |
20 |
4 |
8 |
0.6 |
18 |
16 |
23 |
0.6 |
2009 |
22 |
7 |
10 |
1.5 |
21 |
16 |
37 |
1.0 |
2010 |
22 |
9 |
11 |
1.5 |
18 |
16 |
38 |
0.9 |
2011 |
22 |
9 |
9 |
1.1 |
16 |
16 |
37 |
0.8 |
Source: World Economic Outlook and BIS |
The share of FIs and corporates in the total outstanding domestic
debt securities is very high in countries like the USA and South Korea
(more than half of the total domestic debt securities). It is low in case of
Japan and UK. The share is declining in US, Germany, Japan and UK,
which could be attributed to the fiscal and monetary stimulus undertaken
by these countries in the aftermath of the global financial crisis (Table 2
and 2a). In case of China and India, this share is increasing consistently.
Excluding FIs, the share of corporates in the total outstanding domestic
debt securities is very low (except in case of South Korea). It has been
increasing consistently in case of China.
Table 2: Share of FIs and Corporates in the Outstanding
Domestic Debt securities |
(in per cent) |
|
US |
China |
Germany |
India |
Italy |
Japan |
South Korea |
UK |
Dec-05 |
71 |
32 |
45 |
4 |
39 |
21 |
55 |
32 |
Dec-06 |
71 |
34 |
46 |
6 |
40 |
20 |
56 |
33 |
Dec-07 |
72 |
33 |
47 |
9 |
42 |
19 |
57 |
34 |
Dec-08 |
68 |
36 |
47 |
9 |
45 |
18 |
61 |
32 |
Dec-09 |
60 |
43 |
45 |
12 |
38 |
16 |
60 |
23 |
Dec-10 |
54 |
46 |
34 |
14 |
35 |
15 |
57 |
20 |
Dec-11 |
51 |
55 |
31 |
14 |
37 |
14 |
57 |
15 |
Source: BIS |
Table 2a: Share of Corporates in the outstanding
Domestic Debt securities |
(in per cent) |
|
US |
China |
Germany |
India |
Italy |
Japan |
South Korea |
UK |
Dec-05 |
13 |
4 |
6 |
1 |
11 |
8 |
30 |
2 |
Dec-06 |
13 |
6 |
6 |
2 |
11 |
8 |
26 |
2 |
Dec-07 |
12 |
6 |
7 |
2 |
11 |
8 |
21 |
2 |
Dec-08 |
12 |
8 |
12 |
2 |
13 |
7 |
25 |
1 |
Dec-09 |
12 |
14 |
12 |
3 |
14 |
7 |
29 |
1 |
Dec-10 |
12 |
17 |
14 |
4 |
12 |
7 |
34 |
1 |
Dec-11 |
12 |
20 |
13 |
4 |
11 |
6 |
36 |
1 |
Source: BIS |
Section IV
Corporate Debt market in India
Indian economy has always been dependent on banks for financing.
Only in the 1980s, some activity was witnessed in the primary market
of corporate bonds, where issuances were undertaken by PSUs, and
investment was done by banks and FIs. Earlier, corporates were mostly
dependent on DFIs, like ICICI, IDBI and IFCI for financing of their
long-term investment. With the conversion of these DFIs into banks,
getting the finance for the long-term projects has become a challenge.
Banks have managed to perform this role, but their capacity is limited
as there are asset-liability mismatch issues in providing long-term
credit. Furthermore, over the years, the bank credit as a proportion of
GDP is also rising, indicating that banks are getting stretched to finance
the growth of the economy (Table 3a). With the cheap availability of
funds in the overseas market, the access to ECBs and ADR/GDR route
has also become more frequent (Table 3b).
Table 3a: Bank credit@ |
Year |
Bank credit/
GDP
(per cent) |
2007-08 |
47 |
2008-09 |
49 |
2009-10 |
50 |
2010-11 |
51 |
2011-12 |
52 |
Source: RBI and SEBI
@ Outstanding Bank credit of SCBs at the year-end. |
Table 3b: ADR/GDR and ECB |
(USD mn) |
Year |
ADRs/GDRs |
ECBs |
2007-08 |
6,645 |
22,609 |
2008-09 |
1,162 |
7,861 |
2009-10 |
3,328 |
2,000 |
2010-11 |
2,049 |
12,506 |
2011-12 |
567 |
9,984 |
In early 1990s, the Government of India abolished most of the
controls that were in place on the interest rates that corporates used to
pay while raising capital through debentures. The ceiling on interest
rates being fixed by the erstwhile Controller of Capital Issues was done
away with in 1992.
The debt market in India comprises broadly two segments, viz.,
Government securities market and corporate debt market. Corporate
debt issued by a firm is either in the form of commercial paper (CP)
or corporate debentures/bonds (CB). While CP has maturities between
one week and a year, corporate bonds have longer maturities. Corporate
bonds have some distinct features. They do not necessarily have semi annual coupons nor have their cash flows fixed values. They may have
some embedded options. Both public and private companies issue
corporate bonds. At present, any company incorporated in India, even
when part of a multinational group, can issue corporate bonds. However,
a company incorporated outside India cannot issue corporate bonds
in India. As per SEBI regulation (2008), debt securities mean non-convertible
debt securities which create or acknowledge indebtedness,
and include debenture, bonds and such other securities of a body
corporate or any statutory body constituted by virtue of a legislation,
whether constituting a charge on the assets of the body corporate or not,
but excludes bonds issued by Government or such other bodies as may
be specified by SEBI, security receipts and securitised debt instruments.
Recently, the corporate sector is taking recourse more to the debt
market than to the equity market. In the corporate debt market, corporate
sector raises funds through public issues or private placement routes.
Private placement is defined as ‘an issue of securities by a company
to a select group of persons (less than 50)’. A public issue is an offer
made to the public in general to subscribe to the bonds. In debt issues,
most of the funds raised are on a private placement basis, though the
share of private placement in total debt collection has declined over the
years (still constitute more than 90 per cent). It may be added that the
public issue of debts has increased substantially over the last few years
(Table 4).
Table 4: Resources raised by Corporate sector |
Year |
Equity
Issues
(Rs.
crore) |
Debt Issues
(Rs. crore) |
Share of
Debt in total
resource
mobilisation |
Share of
Private
placement
in total
debt issues
mobilisation |
Public |
Private Placement |
Total |
(in per cent) |
(in per cent) |
2007-08 |
85,427 |
1,603 |
1,184,85 |
1,20,088 |
68 |
99 |
2008-09 |
14,721 |
1,500 |
1,73,281 |
1,74,781 |
93 |
99 |
2009-10 |
55,055 |
1,500 |
2,12,636 |
2,14,136 |
84 |
99 |
2010-11 |
58,158 |
9,451 |
2,18,785 |
2,28,236 |
81 |
96 |
2011-12 |
12,857 |
35,585 |
261,282 |
2,96,867 |
95 |
91 |
Source: SEBI Handbook of Statistics. |
Keeping in view the objective of developing India’s corporate
bond market, the Government appointed a Committee under late
R.H.Patil on Corporate Bond and Securitisation, and the Committee
submitted its report in December 2005. Further, in January 2007, the
Government identified the respective regulatory jurisdiction of the
different regulators on the corporate bond market. SEBI is responsible
for primary market (public issues as well as private placement by listed
companies) and secondary market (OTC as well as exchange traded)
for the corporate debt. RBI is responsible for the repo/reverse repo
transactions in corporate bond. Subsequently, it has been decided by the
High Level Committee on Capital and Financial markets (HLCCFM)
that RBI would regulate issuances of instruments of maturity of less
than one year and the Ministry of Corporate Affairs (MCA) would
regulate unlisted securities of maturity more than one year.
As per SEBI, as on March 31, 2012, the outstanding value of nonconvertible
corporate debt was approximately Rs.10.52 lakh crore.
Around 95 per cent of these issues are privately placed. Around 80
per cent of these debt issues are also listed on the stock exchanges
(nonconvertible debt securities with nominal value of Rs. 8.02 lakh
crore were listed on NSE as on April 30, 2012). From the data, it can be
seen that the corporate debt market consists of largely privately placed
securities which are subsequently getting listed in the exchanges.
Corporates prefer raising funds through private placements as against
public issues. The disclosures in the case of public issues are more
rigorous or onerous. The public issue is a time consuming process also
as there is a need for the issue of a prospectus. In private placement,
cost structure is adjusted to suit both issuer and investors. The minimum
disclosure, customised structures and the fast speed of raising funds
through private placement have made this route more attractive for the
corporates to raise funds from the market.
In the corporate bond market of India, majority of the issuances
are of the 1-5 year tenor. Over the years, the issuance of securities in
the shorter term 1-5 year bucket has increased, and dominated the total
issuance in the corporate bond market (Rajaram and Ghose 2011).
This type of issuances at the lower end shows that the Indian corporate
bond market is not fulfilling the desired role of financing the long term
investment. At the sector level, finance companies, manufacturing
companies, and infrastructure companies dominate the issuance of corporate bonds in India. Most of the bonds issued are of higher
investment grade, and on a fixed rate basis. Indian corporate bond
market is characterised by dominance of government owned companies,
private placement of corporate bonds, and increasing recourse of the
Indian companies to international bond markets. A number of Indian
companies issue bonds in overseas markets, and these are largely placed
with institutional investors. These bond offerings are not registered
with regulators like Security Exchange Commission (SEC), and avail
exemptions under different US securities regulations (Khanna and
Varottil, 2012). Among these, substantial offerings are in the form of
convertible bonds, i.e., Foreign Currency Convertible Bonds (FCCBs).
While the nonconvertible bonds segment is dominated by blue-chip
companies, the FCCB segment is utilised by companies across the
spectrum (Babu and Sandhya, 2009, and Khanna and Varottil, 2012).
This did not happen in 2011-12, when most of the funds raised were
through ECBs and less through FCCBs as a falling share market did not
help raising funds through FCCBs (Nath, 2012). However, it may be
added that both ECBs and FCCBs bring in their own set of risks.
In the secondary corporate bond market, the private placement
securities are traded over the counter. Public issues are listed and traded
in capital market segment of the exchange, along with equity shares.
Since 2009, all trades in corporate bonds between specified entities,
namely, mutual funds, foreign institutional investors, venture capital
funds, foreign venture capital investors, portfolio managers, and RBI
regulated entities as specified by RBI have mandatorily been cleared and
settled through the National Securities Clearing Corporation Limited
(NSCCL) or the Indian Clearing Corporation Limited (ICCL). This
provision is applicable to all corporate bonds traded over the counter or
on the debt segment of Stock Exchanges on or after December 01, 2009.
Insurance Regulatory Development Authority (IRDA) has also issued
similar guidelines for its regulated entities. However, the provision is
not applicable to corporate bonds that are traded in the Capital Market
segment/ Equity Segment of the Stock Exchanges (and are required to
be settled along with the equity shares). The Reserve Bank (in 2009)
allowed the clearing houses of the exchanges to have transitory pooling
accounts facility with the Reserve Bank for facilitating settlement of
OTC corporate bond transactions on a DVP-I basis (i.e., on a trade-bytrade
basis). Under the proposed settlement mechanism, the buyer of securities transfers the funds from his bank to this transitory account
through RTGS. The clearing house then transfers the securities from the
seller’s account to the buyer’s account and effect the release of funds
from the transitory accounts to the seller’s account.
With the approval of SEBI, reporting platforms have been set up
and maintained by BSE, NSE and FIMMDA to capture information
related to trading in corporate bonds. Secondary market trading of
corporate bonds issued under a public issue takes place in the exchanges
along with equities. However, trading of privately placed corporate
bonds in the secondary market takes place in OTC category. The deals
with value of more than one lakh rupees are reported over NSE, BSE
and FIMMDA platforms within thirty minutes of the closing of the deal
(the parties also indicate their preferred clearing house for settlement).
And this settlement takes place in the clearing houses of exchanges
on DVPI basis. Finally, FIMMDA aggregates the trades reported on
its platform as well as those reported on BSE and NSE. Though the
FIMMDA platform was the latest reporting platform to be instituted,
the majority of corporate bond deals are now reported on it. The share
of this platform in the total reporting has increased from 41 per cent in
2008-09 to 59 per cent in 2011-12. It could be due to reporting by the
RBI regulated entities over the FIMMDA platform.
Secondary market trading is important as it indicates price, credit
risk appetite, spread, default probability (Mishkin, 2006). Most of
the corporate debt issues in India do not find way into the secondary
market due to lack of transparency and standardisation. The diverse set
of rules and provisions for different types of investors and instruments
do not add transparency to this market. Similarly, there is no public
availability of information on individual issuances, outstanding stock,
issue size, option availability and rating migration, etc. Predominance
of private placement is having its effect on the liquidity of secondary
market as players are holding the bonds till maturity. Corporate bonds
are generally purchased by merchant bankers, and then get offloaded to
other financial institutions that hold most of the purchase for meeting
their own requirements (like close ended schemes in case of Mutual
Funds). The trading pattern in the secondary corporate debt securities
market is mostly concentrated in the 1-10 year tenor securities,
particularly in the higher investment grade securities. The settlement is
on T+0, T+1 or T+2 on DVP I basis without any guarantee of settlement from the clearing corporations. Though the trading volume is still low
for corporate bonds in India, a gradual pick-up has been observed in the
recent years. Most of the time, its average daily volume is more than
that of some other instruments like commercial paper (CP), treasury bill
(TB) and State Development Loans (Table 5). Secondary market trading
is mostly concentrated in bonds issued by finance and infrastructure
companies.
Table 5: Average Daily Trading Volume in Secondary Market
(in October 2012) |
Instrument |
Volume (in Rs. crore) |
Central Govt securities |
25,903 |
Certificates of Deposit |
9,081 |
Corporate Bond |
3,649 |
Treasury bill |
2,691 |
Commercial paper |
2,297 |
State Development Loans |
343 |
Source: CCIL Rakshitra |
The Reserve Bank permitted the introduction of ready forward
contracts or repo in corporate bonds in the Second Quarter Review of
the Annual Monetary Policy for 2009-10. The repo in corporate bond
was permitted, only in case of listed corporate debt securities rated
AA or above and held in demat form. CPs, CDs and Non-Convertible
Debentures (NCD) having less than one year residual maturity, were
not eligible for repo earlier. All the trading in repo in corporate debt
securities is to be on OTC basis. While the repo trades are reported
within 15 minutes of the trade on the FIMMDA reporting platform,
the same trades are also reported to one of the clearing houses of the
exchanges for clearing and settlement. All repo transactions are settled
on a T+0, T+1 or T+2 basis under DVPI (gross basis) framework in a
non-guaranteed manner. A haircut of 10 per cent for AAA, 12 per cent
for AA+, 15 per cent in case of AA was applicable on the market value
of the corporate debt security (the hair cut has been reduced by the
Reserve Bank to 7.5 per cent, 8.5 per cent and 10 per cent, respectively,
in January 2013 and repo has been permitted in CPs, CDs and NCDs
of less than one year original maturity). Actual Repo trade in corporate
bonds started in December 2010; though these trades are rare occurrence
now-a-days.
Section V
Issues and Challenges with the development of
Corporate bond market in India
The underdevelopment of India’s corporate bond market has some
historical perspective. The big companies, at the time of opening up of
the economy, saw more benefits from the stock market liberalisation
than from the bond market liberalisation (Armour and Lele 2009, Singh
2011, Khanna and Varottil 2012). The built up of debt in the 1970s
and the 1980s was in the consciousness of the policy makers. Thus,
the development of the bond market did not attract the attention of the
policy makers. With the opening of the economy, there was high inflow
of FIIs and GDRs, and it strengthened the primacy of equity market
(Virmani 2001, Virmani 2006, Khanna and Varottil 2012, Ahluwalia
1999). Furthermore, the equity market liberalisation measures were in
the hands of the regulators but the measures required for development
of corporate bond market were in the hands of legislatures (Armour and
Lele 2009, Khanna and Varottil 2012).
At present, there is miniscule participation of retail investors in
corporate bond market, though they are coming gradually. FIIs can buy
corporate bonds, but only up to a limit. Though there are instances of
bonds selling like hot cakes in public issuances, they are few in number.
Infrastructure bonds generated lot of interest with the allowance of
Rs.20,000 tax deductions. Similarly, corporate bonds of some financial
entities with high standing and robust distribution channel also saw huge
subscription in public issuances. These positive experiences indicate
that rightly priced bonds along with an incentivised distribution channel
can generate the interest of the retail investors. Recently, the Reserve
Bank of India has advised banks that at the time of issuing subordinated
debt for raising Tier-II capital, to consider the option of raising such
funds through public issue to retail investors.
A simplified and low stamp duty structure is an ingredient for
building up of a vibrant corporate bond market. In India, now-a-days
the secondary market transactions in corporate bonds through demat
transfers do not require stamp duties. Nevertheless, stamp duty is
still applicable in case of issuance, re-issuance and transfer (if held in
physical form) of corporate bonds, and it is higher in comparison with
international standards. It is also not uniform across the states.
The Tax Deduction at Source (TDS) policy is not uniform for all
investors in corporate bonds. In 2009, the Union Budget announced that
corporate debt instruments issued in demat form and listed on recognised
stock exchanges are exempt from TDS. However, TDS is still applicable
in certain cases. Because of TDS on interest payments, FIIs used to
sell the bond before the coupon payment date and then repurchase it
after the coupon payment, a practice known as ‘coupon washing’ in
market parlance. In the current financial year, the Government has
reduced the withholding tax (to 5 per cent from 20 per cent) in respect
of interest on investment made in bonds issued by Indian companies in
order to provide broad-based incentive and encourage greater offshore
investment in debt market.
In general, bond financing is expected to be easier to obtain than
financing from banks (Mishkin 2006). However, Indian banks generally
find it convenient to give loans to corporates instead of investing in
their bonds. The provisioning norms in respect for loans are easier to
adopt than adopting the mark-to-market norms in case of investment
in corporate bonds. Similarly, the corporates also prefer to go for bank
loans than raising funds from the bond market.
Corporate bonds are usually rated before they come to the market
(whether the bond is publicly issued or privately placed). The liquidity
in the market for corporate bonds is skewed towards higher investment
grade bonds, and there is practically no volume in lower grades. Any
issuer trying to raise debt in the market with an issue that has rating of
non-investment grade faces problem. The lack of liquidity has been a big
challenge for the new entrants in raising funds. All these have created a
vicious circle in the development of the corporate bond market.
Indian corporate bond market also sees high number of issues every
year. In one single year, there were more than two thousand primary
issues, indicating the arrival of more than two thousands new corporate
bonds in the market. This huge number makes it very difficult for any
corporate bond to remain liquid (Prasanna 2012). The solution to this
problem lies in promoting reissuance of the same bonds. However,
bunching of issues can create large liability on a particular redemption
date, thereby creating asset-liability mapping problems for the corporate.
To avoid this situation, back-to-back underwriting arrangement can be
made available for ensuring that the large redemptions do not create problems. It is also being argued to involve PSUs and large corporates
with significant amount of outstanding bonds in devising a suitable
scheme of consolidation of their issues (Khan 2012).There is also a
case for limiting the number of fresh issuances in a year.
The absence of market makers is also another hindrance for
the development of corporate debt market in India. In Government
securities market, banks and PDs play a big role as market maker with
reasonable success (Khan 2012). However, holding high amount of
stock of corporate bond is extremely risky; hence there is a need for
high incentive to the party whichever is designated to do this role. It
may be added that only in January 2013, SEBI has approved merchant
bankers, issuers through brokers or any other entity to act as market
maker. But without any incentive for them, it is doubtful whether this
initiative would succeed.
In corporate bond market in India, the debenture trustees (DTs)
are not very effective. DTs only come to the picture at the time of
issuance of bonds to ensure that the property charged with the bonds is
available and adequate, free from encumbrance; then again at the time
of maturity when the property becomes free. The creation of the pool
of assets charged with the bonds is not fast in India. The role of DTs
can be enhanced by giving them the power of enforcement of contracts.
Similarly, they can be made to do investor compliance by disclosing
the details of the changing financial conditions of the issuer to the
investors. SEBI has recently asked the credit rating agencies (CRAs) to
share with the DTs all relevant information about the ratings assigned by
them for debt securities and about the issuers of such instruments. With
this, a two-way information sharing arrangement between the CRAs and
DTs has been put in place. CRAs are now required to inform the DTs if
companies issuing debentures do not share information for monitoring
of credit quality. DTs are also expected to provide information to CRAs
on whether the assets backing the bonds are free of encumbrance and
adequate to cover the liability.
There was absence of order-matching platform for corporate
bonds, like the NDS-OM platform in G-sec market. The platforms
available in the exchanges were just being used for reporting of OTC
trades in the secondary market. The creation of a new platform that
meets the changed expectation of the market participants was felt
(Prasanna 2012).The new platform bringing additional liquidity is not certain, but it is likely to generate positive externalities like any other
infrastructure, and help in making the secondary market of corporate
bonds more transparent and robust. Subsequently, all these may bring
in liquidity. Generally, participation of institutional players generates
liquidity. In January 2013, SEBI permitted the exchanges for setting up
of two separate debt segment platforms, one for institutional players and
the other for retail investors; which would offer screen based trading
with facilities of order matching, request for quote and negotiated trade.
The regulatory prudential norms for the participants in India’s
corporate bond market also appear restrictive. The banks, MFs and
insurance companies face limits on the investment amount and on the
rating status of the corporate bonds to make investment in (Khanna
and Varottil 2012). For instance, banks are not allowed to invest more
than 10 per cent of their total investment portfolio in unlisted non-SLR
securities. Similarly, in case of repo in corporate debt securities, MFs
are not allowed to invest below AA rated debt securities (Table 6).
The presence of credit enhancements mechanism can promote the
primary issuance of corporate bonds. Credit enhancements mechanism
assumes that borrower will honour the obligation by inclusion of third
party guarantee and additional collateral. This mechanism enhances
credit rating and lowers the interest rates on the debt. This is a new
concept in Indian corporate bond market. However, it may be added
that credit enhancement by banks in any form is not in the best interest
of the economy, as it will transfer the risks to the balance sheet of banks.
The ultimate objective of reduction of risk in the banks’ balance sheet
by developing the corporate bond market will not be met. Incidentally,
some financial institutions have shown interest in doing credit
enhancement recently (Khan 2012). The recent hike in investment limit
in credit enhanced bond for FIIs is a step in the right direction.
Presence of a repo market increases the liquidity of the underlying
product and in the process increases the investor base for the underlying
product. In India, the repo in corporate debt is not taking off due to
lack of active participation of MFs and insurance companies. Repo in
corporate debt securities was introduced in March 2010. However, so
far, trades have taken place only on a few occasions and mostly with
volume of less than Rs.100 crore. The liquidity risk associated with
corporate bond is not generating comfort for the investors or regulators.
The haircut in the case of repo was high. There is also some disagreement
among participants on the provisions of global master repo agreements (GMRA) for the corporate bond repo market. With the recent reduction
in haircuts, availability of repo on liquid instruments like CPs, CDs etc,
and permission to MFs and insurance companies for participation, it is
expected that liquidity in the repo market will increase.
Table 6: Norms for investment in corporate debt securities |
Participants |
Norms |
Banks |
• Banks are allowed to invest up to 10 per cent of their total
investment portfolio in unlisted non-SLR securities. |
• A bank’s investment in all types of instruments, eligible for
capital status of investee banks, is not to be more than 10 per
cent of the investing bank’s capital. |
Insurance
companies |
• Not less than 75 per cent of investment in debt instruments in
case of life insurers, and not less than 65 per cent in case of
general insurers, should be in sovereign debt or instruments
having AAA rating for long term (P1+ for short term). |
• Insurance companies were earlier permitted in reverse repo
transactions in Government securities and corporate bonds
within 10 per cent limit of all funds, but recently, IRDA has
clarified that the 10 per cent limit is not applicable in case of
reverse repo in government securities. |
Mutual Funds |
• A mutual fund scheme is not allowed to invest more than 15
per cent of its NAV in debt instruments issued by a single issuer
which are rated not below investment grade (it may extend up to
20 per cent of NAV of the scheme with the prior approval of the
trustees and board of Asset Management Company).
• A mutual fund scheme is not allowed to invest more than 10 per
cent of its NAV in unrated debt instruments issued by a single
issuer and the total investment in such instruments is not allowed
to exceed 25 per cent of NAV of the scheme. |
• Total exposure of debt schemes of MFs in a particular sector
shall not exceed 30 per cent of the net assets of the scheme. |
• MFs are allowed to participate in repo transactions only in AA
and above rated corporate debt securities. |
FII |
• US$ 51 billion can be invested in corporate bond [(a) US$ 1
billion for Qualified Foreign Investors (QFIs), (b) US$ 25
billion for investment by FIIs and long term investors in non infrastructure
sector and (c) US$ 25 billion for investment by
FIIs/QFIs/long term investors in infrastructure sector]. |
Provident
fund |
• Investment in corporate debt is allowed up to 10 per cent of the
PF portfolios.
Recently, Central Board of Trustees (CBTs) of Employee
provident fund Organisation has recommended for hiking it to
40 per cent of the EPFO corpus. |
Source: Author’s own compilation from various sources. |
Recently, there has been demand for giving SLR status to
investment in corporate bonds. While SLR status to corporate bond
would help banks in terms of higher returns, it would also bring in
mark-to-market norms since these bonds are not likely to be given
the benefit of hold-till-maturity. It would also make the management
of Government’s borrowing programme difficult. The SLR status to
corporate debt securities would help only big companies with AAA
rated corporate bonds. Lower rated issuers would not get any benefit
from this measure. Since the banks generally maintain their G-Secs
much above the SLR level, it is not certain whether they would go for
corporate bonds, even if the proposal is accepted.
The diversified regulations are also affecting liquidity of corporate
bonds in the secondary market. Though the SEBI has rationalised
regulations for issue and listing of corporate bonds in 2008, shelf
prospectus and on-tap facilities are available to public sector financial
institutions only. This type of varied treatment does not generate interest
for public offering of the corporate bonds (Khanna and Varottil, 2012).
The introduction of Credit Default Swaps (CDS) was expected to
provide market participants another tool to transfer risks. Since CDS
acts as an insurance against the default of corporate bonds, it will also
help in case of bond insolvency. The guidelines on CDS were announced
by the Reserve Bank in May 2011. Entities, categorised as users, are
permitted to buy credit protection only to hedge the underlying risks on
corporate bonds. Other entities, which are eligible to quote both buy/
sell CDS spreads, are permitted to buy protection without underlying
bond. This product has also failed to take off due to various reasons.
Recently, CDS has been permitted on unlisted but rated bonds, also on
CPs, CDs and NCDs with original maturity of less than one year.
In India, there is no centralised database on the rating migration
of companies issuing bonds, and also on losses incurred by them.
This type of database helps investors in making informed investment
decision. Taking cognisance of issues pertaining to corporate debt
market, SEBI (on January 24, 2013) has announced new guidelines for
providing dedicated debt segment on stock exchanges. The dedicated
debt segment offers electronic, screen-based trading with facility for
order matching, request for quotes and negotiated trades. The trading
facility is to be provided using exchange network including access
methods such as internet trading, mobile trading etc. The debt segment has two separate platforms for the markets: (i) retail market- a market
for listing and trading of publicly issued debt instruments, and (ii)
institutional market- a market for non-publicly issued debt instruments.
In case of negotiated trades by members of the debt segment, the trades
are to be reported to stock exchange within 30 minutes of the trade. As
per the new guidelines, all trades are to be cleared and settled through a
clearing corporation. For institutional market, all trades are to be settled
with T+1 rolling settlement on DVP-I basis using RTGS account.
Stock exchanges may opt for DVP-II and DVP-III in future. For retail
market, the trades are to be settled with T+2 rolling settlement on DVPIII
basis with settlement guarantee. Furthermore, with an objective to
have centralised repository for trades in debt instruments, the stock
exchanges shall report trade information to a common trade repository.
Additionally, market makers have been permitted in the debt segment.
Market making can be provided by merchant bankers, issuers through
brokers or any other entity specified by stock exchanges and approved
by SEBI. In addition, on October 22, 2013, SEBI has issued a circular
for the creation of a centralised database for corporate bonds.
In India, corporate bonds are deemed risky as the legal framework
for recovering the investment is too lengthy. Also, enforcement of
contracts is very poor. World Bank, in its recent Doing Business Report,
has placed India at 184 out of the 185 countries as per the enforcement
of the contract parameter. It may be highlighted that the time taken to
resolve a dispute is 1420 days on an average in India, whereas it is 360
days in case of Hong Kong. This delay is a deterrent for any financial
entity trying to invest in the corporate bond. Devising methods to make
a secured claim by the lender on the collateral will go a long way in the
development of corporate bond market. This can be achieved through
faster process of deciding insolvency, winding up and liquidation.
Today, banks can report all data about defaulting firms to a credit
information bureau called the Credit Information Bureau of India Ltd
(CIBIL). However, there are some financial institutions which are not
members of CIBIL. Moreover, the reporting to CIBIL is voluntary.
Furthermore, the process of recovering value for the credit on a defaulted
loan is lengthy and costly. The government set up Board for Industrial
and Financial Reconstruction (BIFR) for revival and rehabilitation of
sick undertakings and for closure of non-viable industrial companies.
However, its success has been limited. The corporate debt restructuring scheme introduced by the Reserve Bank for the revival of corporate as
well as safety of the money lent by banks and FIs, has also got mixed
success. Debt Recovery Tribunals were established to avoid delays
with courts in the enforcement for debt owed to banks and FIs. Also the
SARFAESI Act of 2002 provides for various ways for the enforcement
of security interest by a secured creditor without the intervention of
courts. It allowed banks and FIs to enforce their claims extra-judicially,
also to exit loans by selling them to an investment entity specialised
in debt. The secured creditor was conferred with the power to take
possession of the asset to sell to recover their dues. Even with remedial
measures, this Act favoured banks and FIs, not regular bond holders
(Armour and Lele 2009, Nath 2012). It has also faced constitutional
challenges. There have been measures for the general creditors in the
form of amendment of Companies Act so that BIFR powers would be
transferred to quasi-judicial body National Company Law Tribunal
(NCLT) and multiplicity of litigation be avoided. This act has also
faced constitutional challenges. As a replacement of the BIFR, now
Asset Reconstruction Companies (ARCs) have been created to take
charge of the non-performing assets. With some amendments in the
securitisation law and a rise in the cap on FDI, ARCs are expected to be
more active in the market. Overall, laws relating to corporate insolvency
are fragmented. There is an urgent need for comprehensive bankruptcy
legislation. These legal impediments are to be addressed, along with
creation of market microstructure, to give a boost to this segment of
financial market (Khanna and Varottil 2012).
Overall, a multitude of factors ranging from higher costs, procedural
hassles, to long legal remedies are obstacles in the growth of corporate
bond market in India. The need of the hour is to bring reform in all the
above aspects and allow the corporate bond market to take off.
Section VI
Progress on R.H.Patil Committee Recommendations
For the development of the corporate bond market, the
Government of India set up a Committee under late R.H. Patil to
suggest recommendations for the corporate bond and securitisation.
The impediments being faced by Indian corporate bond market were
highlighted by the report of the Committee. The following table
summarises the recommendations for the development of corporate debt market only. Although most of the recommendations have
been implemented, no progress has been made on some crucial
recommendations like stamp duty rationalisation and limiting the
number of fresh issuances of corporate bonds in one year (Table 7).
Table 7: Action taken on the Recommendations of
R.H. Patil Committee Report |
Sr.No |
Recommendations |
Progress |
Development of Primary Market |
1. |
• Stamp duties on corporate bonds
to be made uniform across states,
be linked to the tenor of the
securities with an overall cap on
the stamp duties |
• No significant progress |
2. |
• TDS rules for corporate bonds to
be removed |
• Almost done |
3. |
• Time and cost for public
issuance, and the disclosure and
listing requirements for private
placements to be reduced and be
made simpler |
• For public/rights issues of debt
instruments, rating of one rating
agency is permitted instead of two
earlier. |
|
• Banks be allowed to issue bonds
of maturities over 5 years for
ALM purpose (and not for
infrastructure only) |
• Banks are now allowed to issue
bonds of any maturities (if it is
for subordinated debt for Tier
II capital then the minimum
maturity is five years). |
|
• Regulatory limits to be set for
the banks when they subscribe to
bonds issued by other banks so
that other entities be encouraged
to subscribe to bonds issued by
banks |
• A bank’s investment in all types
of instruments, eligible for capital
status of investee banks, is not
allowed to exceed 10 per cent of
the investing bank’s capital funds. |
4. |
• Evolvement of market-makers for
corporate bonds |
• Only in January 2013, SEBI has
announced the creation of market
makers though they are yet to take
shape. |
5. |
• For already listed entities,
disclosure to be substantially
abridged. Only some incremental
disclosures to be made required |
• When equity of a company is
listed, and such company wishes
to issue debt instruments, only
minimal incremental disclosures
are required now. |
|
• The role of debenture trustees to
be strengthened |
• In 2007 August, SEBI made
it mandatory for debenture
trustees (DTs) to disseminate all
information. |
|
• Companies to pay interest and
redemption amounts, in respect of
corporate bonds issued by them,
to the concerned depositories who
would then pass them on to the
investors through ECS/warrants |
• Companies now- a-days pay the
interest and redemption amounts
through ECS . |
|
• Mandatory for the issuers to get
privately placed bonds listed
within 7 days from the date of
allotment |
• When the issuer has disclosed
the intention to seek listing of
debt securities issued on private
placement basis, the issuer shall
forward the listing application
along with the disclosures to
two recognized stock exchanges
within fifteen days from the
date of allotment of such debt
securities. |
|
• The credit to the demat account
within 2 days from the date of
allotment to be made mandatory |
• The credit to the demat account
takes up to 15 days. |
6 |
• The scope of investment by
provident / pension /gratuity
funds and insurance companies in
corporate bonds be enhanced and
rating to form the basis of such
investments |
• Some progress already made (in
April 2010, the EPFO trustees
were allowed to invest funds in
joint sector companies where GOI
is having 26 percent stake).
• Recently, EPFO has been allowed
to invest in bonds of private firms
that are AAA rated, listed, have
made profit in last five years, and
have a net worth of Rs.3000 crore,
have declared at least 15 per cent
dividend for preceding five years
and with maturity period of its
bonds at least 10 years. |
|
• Investment guidelines for these
entities to be common across
different issuer categories |
• No significant progress |
|
• Retail investors to be encouraged
to participate in the market
through stock exchange |
• Awareness programmes are being
conducted for investors,
• Tax exemption on infrastructure
bonds was also another step in
that direction,
• RBI direction to banks to issue
subordinated debt to retail
investors is another step.
• In January 2013 guidelines of
SEBI, a separate dedicated debt
segment has been created for
retail investors. |
|
• Allowing separate higher limit
for FIIs on a yearly basis for
investment in corporate bonds |
• FIIs investment limit has been
increased to $51 billion. |
|
• In order to encourage banks
to invest in corporate bonds,
investment in corporate bonds to
be considered as part of total bank
credit while computing credit deposit
ratio |
• No significant progress |
7 |
There should be a guideline
limiting the number of fresh
issuances |
• No significant progress |
8 |
• Creation of a centralised database
of all bonds issued by a corporate.
This database is to also track
rating migration |
• There has been some progress
(broadly data is available on
SEBI website but not in detail as
prescribed by the committee).
• In October 2013, SEBI has
announced the creation of a
centralised database but it is yet to
take shape. |
|
• Appropriate enabling regulations
for setting up and licensing of
platforms for non-competitive
bidding and order collection
for facilitation of an electronic
bidding process for primary
issuance of bonds |
• No significant progress. |
Development of Secondary Market |
9 |
• Establishment of a system to
capture all information related to
trading in corporate bonds in real
time basis |
• Reporting platforms are provided
by NSE, BSE, and FIMMDA.
• SEBI places secondary market
trade data on its website at regular
interval. |
|
• Different regulators to mandate
the entities to report the details of
transaction within specified time
of the trade to the trade reporting
system |
• To promote transparency in
corporate debt market, a reporting
platform was developed by
FIMMDA and it was mandated
that all RBI-regulated entities
report the OTC trades in corporate
bonds on this platform. Other
regulators have also prescribed
such reporting requirement in
respect of their regulated entities. |
10 |
• Clearing and settlement of the
trades to be made according to
the IOSCO standard (Phase wise
movement from DVP1 to DVP3).
RBI may grant access of the
RTGS to the concerned clearing
and settlement entities |
• DVP I settlement for secondary
market OTC trades is already in
place (Transitory pooling facility
has been provided by RBI).
• The guideline of January 2013
have made announcement in the
direction for DVPIII. |
|
• Appropriate approvals may be
given by the concerned regulators
to enable free participation on the
trading platform through limited
membership by the concerned
entities for the purpose of
proprietary trading |
• Scheduled Commercial Banks
(SCBs) are permitted by RBI
from November 2012 to become
members of SEBI approved
stock exchanges for the purpose
of undertaking proprietary
transactions in the corporate bond
market. |
11 |
• Development of an Online order
matching platform for corporate
bonds by exchanges or jointly by
regulated institutions |
• Till December 2012, Nonfunctional
(BSE and NSE trading
platforms are operational where
trade matching are order driven
with essential features of OTC
market).
• A new order matching platform
has been allowed in January 2013
by SEBI, and the platform of NSE
has gone live in May 2013; though
it is yet to achieve liquidity. |
12 |
• Introduction of tri-partite repo
contract, securities lending and
borrowing , DVP III settlement
and STP enabled order matching
system |
• No significant progress on
tripartite repo contract.
• DVP III settlement and STP
enabled order matching have been
allowed by SEBI in the recently
approved dedicated debt segment. |
13 |
• Reduction in shut period |
• As per January 2013 SEBI
guideline, shut period has been
done away with for interest
payment, but issuers have been
allowed to specify shut period
for corporate actions such as
redemptions. |
14 |
• Unified market convention |
• All issuers are directed to use
interest rate convention of Actual/
Actual, though other conventions
are still in practice. |
15 |
• Permission for Repos in Corporate
Bonds |
• Permitted by RBI since March
2010 (recently MFs and Insurance
companies have been permitted
to participate in it by respective
regulators). |
16 |
• Reporting of the OTC Interest
Rate Derivatives, and introduction
of the exchange traded derivatives |
• OTC Interest rate Derivatives
trades are being reported over
CCIL.
• Delivery based Interest rate futures
(IRFs) have been introduced in
the exchanges, though it is yet to
achieve liquidity.
• Reserve Bank has recently
announced to indroduce cash
settled 10 year IRF contracts. |
17 |
• Reduction in the market lot from
Rs.10 lakh to Rs. 1 lakh |
• The tradable lot has been reduced
to Rs. 1 lakh.
• Now with the development
of separate debt segment in
the exchanges, the lot size for
institutional investors has been
fixed at minimum Rs.1 crore. |
Source: Author’s own compilation from various sources. |
Section VII
Empirical Works On Corporate Bond Yield Behaviour
The behaviour of corporate bond yield has always been an
interesting subject. To delve deeper into it, the generic 5-year-AAA-rated
corporate bond secondary market yield is taken (as it is the most
liquid one) and its relationship with other financial market variables
is analysed. Furthermore, whether monetary policy transmits to the
corporate bond market, and whether pricing in Indian corporate bond
market adequately reflects risks associated with it, are important issues
that need to be understood for the policy making. In addition, the
integration of India’s corporate bond market with the overseas markets
is another area that cannot be overlooked. All these issues are studied
in this section.
Methodology and Database
To study the dynamics of monetary policy transmission to the
corporate debt market, the study employs structural vector autoregression
(SVAR) approach. In the next stage, the study applies
the GARCHM (1,1) methodology to see the potential of corporate
debt market segment to price various risks. Lastly, the integration of
corporate debt market with overseas markets is analysed through the use
of multivariate GARCH model, particularly diagonal (VECH (1, 1)).
This study uses 5-year-AAA generic corporate bond yield (taken
from Bloomberg), and tries to identify its relationship with some widely
used variables. The financial sector /real sector variables considered in
this study are: (i)Secondary market Yield of 5-year AAA rated corporate
bond in India (source :Bloomberg);(ii) Secondary market Yield of
5-year G-sec in India (source: Bloomberg); (iii) Secondary market
Yield of 10-year G-sec in India (source: Bloomberg); (iv) Call rate in
India (source: RBI Handbook of Statistics) ; (v) Index of Industrial
production (IIP) (source: CSO); (vi) Wholesale Price Index (WPI)
in India (source: Office of Economic Adviser); (vii) Sensex (source:
BSE website); (viii) Bank credit in India (source: RBI Handbook of
Statistics); (ix) Exchange rate of Indian Rupee vis-a-vis US dollar (RBI
Reference rate); (x) Moody’s yield of AAA corporate bond of USA
(source: Federal Reserve Bank of St. Louis).
The choice of these variables is guided by demand/supply and
liquidity considerations. The Government security yield is taken as it
is risk-free interest rate prevailing in the market. Similarly, Call rate is
taken to show the liquidity conditions, and IIP data is taken to capture
the conditions prevailing in the real sector.
In this study, some empirical work has been attempted on the
behaviour of the corporate bond yield (taking the yield of the most
liquid corporate bond as the representative one). For the empirical
exercise, Structural vector autoregression (SVAR), GARCH-M (1,1)
and Diagonal VECH (1,1) approaches have been applied for examining
various issues. A brief description of these has been given below.
Structural Vector Autoregression (SVAR)
The main purpose of SVAR estimation is to obtain non-recursive
orthogonalization of the error terms for impulse response analysis
(Eviews).
The SVAR models can be written as: Aet=But (1)
Where et and ut are vectors having n variables. ut is the observed
(or reduced form) residuals, while et is the unobserved structural
innovations. A and B are matrices to be estimated.
The structural innovations et are assumed to be orthonormal, i.e.
its covariance matrix is an identity matrix. This assumption imposes
restrictions, and to identify A and B, additional restrictions are identified.
GARCH-M (1,1)
In finance, the return of a security may depend on its volatility
(risk). To model such phenomena, the GARCH-in-Mean model adds a
heteroscedasticity term into the mean equation. It has the specification
The Multivariate GARCH Model
In case of volatility spill-over, the objective is to examine the
interdependence of return and co-volatility across markets, by using
Determinants of the Corporate Bond yield
The co-movements of the 5-year-AAA rated generic corporate
bond yield with some commonly used variables have been looked into
by using correlation analysis and granger causality test.
For this analysis, the IIP, WPI and bank credit were seasonally
adjusted by X-11 method. For the 5year AAA corporate bond yield,
10-year G-sec yield, call rate, Sensex and exchange rate, the average
monthly figures are calculated. The contemporaneous correlation
of all these variables is calculated. The variables which are having
correlation within 5 per cent level of significance are considered to be
showing relationship with the AAA corporate bond yield (Table 8).
The contemporaneous correlations indicate high degree of positive
association between AAA corporate bond yield with call rate and G-sec
yield. However, the corporate bond yield is negatively correlated with
sensex (at 10 per cent level of significance). The correlation result
(calculated with the monthly figures of this period) indicates that
correlation of corporate bond yield with the WPI, bank credit, IIP and
exchange rate is not significant.
Table 8: Correlation of AAA corporate bond yield with other variables (in level) |
|
AAA5 |
Call rate |
Gsec 10 |
Sensex |
IIPsa |
WPIsa |
Bank Creditsa |
ExRate |
AAA5 |
1 |
|
|
|
|
|
|
|
Call rate |
0.67 (0.00) |
1 |
|
|
|
|
|
|
Gsec10 |
0.53 (0.00) |
0.57 (0.00) |
1 |
|
|
|
|
|
Sensex |
-0.24 (0.06) |
0.06 (0.64) |
0.53 (0.00) |
1 |
|
|
|
|
IIPsa |
-0.12 (0.36) |
0.18 (0.16) |
0.41 (0.00) |
0.61
(0.00) |
1 |
|
|
|
WPIsa |
-0.04 (0.73) |
0.27 (0.03) |
0.40 (0.00) |
0.43
(0.00) |
0.94 (0.00) |
1 |
|
|
BankCreditsa |
-0.10 (0.41) |
0.22 (0.07) |
0.33 (0.01) |
0.40
(0.00) |
0.93 (0.00) |
0.99
(0.00) |
1 |
|
ExRate |
-0.15 (0.23) |
0.05 (0.67) |
-0.17 (0.18) |
-0.27
(0.03) |
0.45 (0.00) |
0.63
(0.00) |
0.67
(0.00) |
1 |
Note: p values are given in the parenthesis.
IIPsa: Seasonally adjusted IIP, WPIsa: Seasonally adjusted WPI, BankCreditsa:
Seasonally adjusted Bank Credit. |
For a detailed study of the relationship, causal relationships are
analysed in the following section. Before proceeding to test the causal
relationship between corporate bond yield and other explanatory
variables, all series are tested for unit root. Table No.9 summarises the
results of unit root tests on levels of these variables (first with only
intercept, and then with trend and intercept).
Table 9 : Unit root test result |
Series |
ADF test |
Phillips-Perron test |
|
With Intercept |
With Trend and Intercept |
With Intercept |
With Trend and Intercept |
|
T-statistic |
T-statistic |
T-statistic |
T-statistic |
AAA Corporate bond yield |
-2.84 |
-2.79 |
-2.23 |
-2.27 |
Bank creditsa |
2.66 |
-0.37 |
3.27 |
-0.12 |
Call rate |
-2.56 |
-2.62 |
-2.72 |
-2.79 |
Exchange rate |
-0.65 |
-1.93 |
0.334 |
-1.04 |
Gsec10 yield |
-2.61 |
-2.74 |
-2.19 |
-2.29 |
IIPsa |
-1.55 |
-3.44 |
-1.54 |
-3.47 |
Sensex |
-2.55 |
-2.74 |
-1.94 |
-2.04 |
WPIsa |
0.75 |
-2.76 |
0.95 |
-1.80 |
Note: 5 per cent critical value with only intercept is -2.91 and in case of trend and
intercept it is -3.48. |
It is evident from the test statistic that all the data series are non-stationary.
Thus, the returns of IIPsa, WPIsa, Sensex, Bank creditsa and
exchange rate are calculated at the lag one month. The first differences
of monthly 5-year AAA corporate bond yield, 10-year G-sec yield and
call rate are calculated. All the variables are tested for unit root, and
found to be stationary. To analyse the causal relationship among these
variables, pair-wise granger causality test is undertaken. The F-statistics
and p-values are reported in the table 10.
The result indicate that the call rate, yield in the G-sec market,
sensex, exchange rate and WPI granger caused the corporate bond yield
in this period. In fact, bidirectional causality is also present between
corporate bond and government securities yields. Similar behaviour is
evident between corporate bond yield and sensex. To elaborate, a rise in
call rate indicates the emergence of scarcity of funds in the inter-bank
market, and thereby leading the corporate bond yield to go up.
Table 10: Granger Causality Test Result* |
Null Hypothesis |
F-statistic |
P-value |
BANKCREDITsa does not Granger Cause AAA5 |
1.03 |
0.419 |
AAA5 does not Granger Cause BANKCREDITsa |
0.77 |
0.596 |
CALLRATE does not Granger Cause AAA5 |
3.47 |
0.007 |
AAA5 does not Granger Cause CALLRATE |
0.495 |
0.808 |
EXRATE does not Granger Cause AAA5 |
3.92 |
0.003 |
AAA5 does not Granger Cause EXRATE |
0.83 |
0.556 |
GSEC10 does not Granger Cause AAA5 |
4.876 |
0.001 |
AAA5 does not Granger Cause GSEC10 |
4.038 |
0.003 |
IIPSA does not Granger Cause AAA5 |
0.953 |
0.467 |
AAA5 does not Granger Cause IIPSA |
1.796 |
0.121 |
SENSEX does not Granger Cause AAA5 |
3.336 |
0.008 |
AAA5 does not Granger Cause SENSEX |
3.275 |
0.009 |
WPISA does not Granger Cause AAA5 |
4.495 |
0.001 |
AAA5 does not Granger Cause WPISA |
0.509 |
0.798 |
*The granger causality analysis has been done with lag 6 after checking the appropriate lag length through various criteria. |
Monetary Policy Transmission to Corporate Bond market
The monetary policy affects the real economy through the
financial market. Hence, financial markets are the connecting link in the
transmission mechanism between monetary policy and the real economy.
Changes in the short-term policy rate provide signals to financial
markets, whereby various segments of the financial system respond
by adjusting their rates of return on various instruments, depending on
their sensitivity and the efficacy of the transmission mechanism (Report
on Currency and Finance 2007). Since corporate bond market is being
envisioned as a remedy for many funding constraints afflicting the
economy, it is important to see whether monetary policy is having any
influence on the corporate bond market.
To analyse the dynamic effects of monetary policy shocks on
corporate bond market, the following variables are used: Policy rates
(i.e. Repo rate, Reverse Repo rate); weighted average call money rate;
10-year generic G-sec yield; 5-year AAA corporate bond generic yield;
sensex, exchange rate of Indian Rupee vis-a-vis US Dollar, etc. The
daily data of Call money, G-sec yield, AAA-5-year corporate bond yield, sensex and foreign exchange rate are averaged to get the weekly
data. The weekly data are chosen to avoid the problem that arises when
one market’s closing day coincides with the trading day of another
market. With the weekly data, the study is undertaken separately for
surplus (December 2008 - May 2010), and deficit (June 2010 - June
2012) liquidity situations. Structural vector auto regression (SVAR) approach has been used for this study.
In case of SVAR, the relationship between the structural shocks
and the reduced form shocks is given by: et = A ut . (10)
Here ut is the observed residuals and et is the unobserved structural
innovations. To obtain the structural disturbances et from estimation
of the ut, elements of matrix A (containing the contemporaneous
relationships among the endogenous variables) are identified.
The identification conditions are: (i) Central bank does not respond
contemporaneously to shocks in financial market rates; (ii) Call money
market responds immediately to changes in policy rate; (iii) G-sec yield
is sensitive to policy rate only; (iv) Exchange rate responds to policy
rate and Call rate; (v) Corporate bond yield responds to policy rate and
G-sec yield; and (vi) Sensex is sensitive to policy rate, call rate, and
exchange rate.
Results
In surplus liquidity situation (December 2008-May 2010), the
reverse repo rate is considered as the policy rate and its effect on the
corporate bond yield is studied with the presence of above conditions
by applying SVAR approach. However, in this case it is very difficult
to draw any conclusion on the effect of change in policy rate on the
corporate bond yield, as the output from the application is not found to
be convergent. It may be added that this surplus period coincides with
the global financial crisis of 2008-09, when all sorts of crisis measures
were in full swing and the level of surplus liquidity was extremely high.
Also, the Reserve Bank of India was on a bond buying spree. Just after the
Lehman brothers failure there were many liquidity enhancing measures
undertaken by the Reserve Bank. These included CRR reduction by 4
percentage points, MSS Buyback, OMO purchase auctions, increase
in the export credit refinance limits. All these measures were designed
to inject around Rs.5,61,700 crore to the financial system (RBI First
quarter Review of Monetary policy 2009-10), and the measures were
withdrawn gradually with the return of normalcy. In no other year, so
many liquidity enhancing measures were undertaken simultaneously by
the Reserve Bank. All these measures made the banking system to park
more than Rs.1,00,000 crore in the reverse repo window of LAF during
2009-10.
In deficit liquidity situation (June 2010–June 2012), the repo rate
is considered as the policy rate and the same SVAR is applied with the
above conditions. Here, the output was convergent. The graph above
shows the impulse response of corporate bond yield to shock in the repo
rate. It indicates that there is monetary policy transmission to corporate
bond market when the system was in deficit mode.
Risk Pricing in Corporate Bond Market of India
To examine the risk pricing capacity of one financial market
instrument, it is compared with another risk free instrument. Sovereign
securities are always considered risk free. In Indian Government
securities market, 10 year Government security (Gsec) is most liquid.
However, it is not comparable with the most liquid corporate bond
(AAA rated 5 year corporate bond). The other Government security
having liquidity is 5year Gsec. Thus, the exercise is undertaken with 5
year G-sec yield and AAA 5 year corporate bond yield.
Generally the risk pricing in financial markets is analysed through
ARCH-M methodology. In this study, the risk premium (spread) is
arrived at by subtracting the daily yield of 5-year-G-sec from AAA-rated-
5 year corporate bond yield. During January 2007-June 2012, this
risk-premium is found to be non-stationary. However, this risk premium
is found to be stationary in the post-crisis period, i.e., October 2009
(when RBI started winding up the crisis related measures) to June 2012.
For identifying the suitable ARMA model for the mean of the
premium (spread) variable, the autocorrelation function (ACF) and
partial autocorrelation function (PACF) are examined. While the PACF
declined sharply after the first lag, ACF declined slowly. This indicates
that conditional mean of the premium (spread) could be characterised
with first order auto regressive AR (1) model.
Initially, ARMA (1,0) model was estimated, and the residuals
generated from it passed through the ARCH LM test. Then various
types of GARCH models are applied to the daily data of risk premium
(spread) for the period October 2009 to June 2012. After the AR
(1)-GARCHM (1,1) is applied, the residuals were still associated with
ARCH effect. But when AR (2) term is included, the residual ARCH
effect disappeared. Different types of GARCHM (1,1) are applied, and
the results are given in the table no.11.
The premium (spread) of corporate bond yield over G-sec is
consistent with AR (2)-GARCHM (1,1), with standard deviation in the
mean equation. The risk of corporate bond has positive effect on the
premium (spread) as coefficient of the standard deviation term is found
to be statistically significant (at 10 per cent level of significance) in
the mean equation. The intercept coefficient estimated at 1.17 in the
mean equation is statistically significant, showing the extent to which
the corporate bond yield could deviate from the G-sec yield on average
in the medium term. When variance in logarithm form is used in mean
equation, it is also found to be having a positive effect, again confirming
the above finding, though the size of its coefficients is extremely small
(around 0.003). Overall, this application shows that the corporate bond
market of India has started pricing the risks associated with it.
Finally, ARCH-LM test is conducted; no residual ARCH effect is
found. The corporate bond market exhibited volatility persistence since
the sum of ARCH and GARCH coefficients is close to unity.
The above result indicates that the corporate bond market in India
is capable of pricing the risks associated with it. This finding is in
contrast with the finding of an earlier paper on the subject (Mishra and
Dhal, 2009). It may be added that the sampling frequency affects the
results (Engle and Patton, 2001). Here the results have been obtained
with the use of daily data, while the earlier study is based on monthly
data. Further, the yield rates of 10 year government securities and 10
year AAA corporate bond are used in that study.
Table 11: Corporate Bond Yield spread |
Items |
AR(2)-GARCH |
AR(2)-GARCHM^ |
AR(2)- GARCHM$ |
Coefficient |
p-value |
Coefficient |
p-value |
Coefficient |
p-value |
Mean Equation |
Intercept |
0.99 |
0.0 |
1.17 |
0.0 |
1.27 |
0.0 |
AR(1) |
0.75 |
0.0 |
0.77 |
0.0 |
0.77 |
0.0 |
AR(2) |
0.22 |
0.0 |
0.20 |
0.0 |
0.20 |
0.0 |
ARCH-M |
|
|
0.04 |
0.08 |
0.0034 |
0.0 |
Variance Equation |
Intercept |
0.0001 |
0.0 |
0.0001 |
0.03 |
0.0001 |
0.03 |
ARCH(1) |
0.07 |
0.0 |
0.10 |
0.004 |
0.105 |
0.003 |
GARCH(1) |
0.89 |
0.0 |
0.86 |
0.0 |
0.854 |
0.0 |
R2 |
0.896 |
|
0.90 |
|
0.90 |
|
LL |
1054.7 |
|
1071.5 |
|
1072.6 |
|
DW |
1.97 |
|
2.03 |
|
2.02 |
|
AIC |
-3.24 |
|
-3.28 |
|
-3.29 |
|
SIC |
-3.20 |
|
-3.23 |
|
-3.23 |
|
Note: ^ and $ refer to ARCH-M terms in the form of GARCH standard deviation and GARCH variance in logarithm form respectively. |
Volatility Spill-over in India’s Corporate Bond Market
Volatility spill over occurs when markets get integrated with each
other. The limit on the FII investment in corporate bonds of India has
been increased at regular interval. The behaviour of FIIs depends on
the financial market conditions in different jurisdictions. Further, the
partial capital account convertibility has allowed the Indian residents to
take advantage from the movement in markets in different jurisdictions,
and switch from one to the other. The behaviour of both the residents
and FIIs can make volatility in one market to spill over to the other one.
To study the volatility spill-over to India’s corporate bond market
from overseas, the secondary market yield of generic AAA-rated-five-year
corporate bond of India, Moody’s yield of AAA corporate bond
of USA are taken (in case of USA the corporate bond yield data is not
easily available, the Moody’s AAA-rated corporate bond yield is easily
available and published by Federal Reserve Bank of St. Louis. The
Moody’s corporate bond yield takes all corporate bonds having more
than 20 years residual maturity, and it is seasonalised). Weekly data is
taken to avoid the fact that the closing day of one market may coincide
with the trading day of the other market. This is the approach that has
been followed in many earlier studies on this aspect (Karunayake 2009).
Then first difference of the yields is calculated. The ADF test rejected
the presence of unit root in the first differences. The Ljung-Box test of
the first difference series shows the presence of serial correlation.
Then multivariate GARCH (diagonal VECH (1,1)) methodology
is applied to the first difference data and the result from it is given in
table 12. The results show that own mean spill-over is occurring in case
of India.
The presence of ARCH effect indicates that the volatility shocks
are significant in India. This means that past shocks arising from Indian
corporate bond market does have impact on India’s future corporate
bond market volatility. There is no volatility shock coming from USA.
The estimated coefficient of variance covariance matrix shows that
co-efficient of the lag conditional variance is statistically significant
in case of India, highlighting the presence of volatility persistence.
This phenomenon is also seen in case of USA. The sum of ARCH and
GARCH coefficients (aii+bii) is nearly equal to 1, and it indicates the
volatility persistence in the two corporate bond markets. Overall, it
shows that the secondary corporate bond market of India does not get
volatility spill-over from the corporate bond market of USA.
To test for the serial correlation left in the system residuals,
Portmanteau Box-Pierce test is conducted using Cholesky of covariance
Orthogonization method. The result indicates that the null hypothesis
of no autocorrelation cannot be rejected. It means presence of the serial
correlation have disappeared.
The mean equations of the change in yield used for the estimation
are given below, and these include terms up to three lag as serial
correlation is found from the Ljung-Box test.
Table 12: Results from Diagonal VECH (1, 1) Estimation |
Parameter |
INDIA |
USA |
Coefficients |
p-value |
Coefficients |
p-value |
μ0i |
0.008 |
0.09 |
-0.004 |
0.42 |
INDIA(lag 1) |
0.30 |
0.0 |
0.119 |
0.00 |
INDIA (lag2) |
-0.029 |
0.67 |
0.031 |
0.48 |
INDIA(Lag3) |
0.065 |
0.27 |
-0.08 |
0.09 |
USA(lag 1) |
0.042 |
0.35 |
0.031 |
0.62 |
USA(Lag 2) |
-0.051 |
0.31 |
-0.007 |
0.91 |
USA(lag 3) |
0.0003 |
0.99 |
-0.018 |
0.78 |
Ci1 |
0.0015 |
0.001 |
|
|
Ci2 |
0.0012 |
0.09 |
0.00 |
0.36 |
ai1 |
0.463 |
0.00 |
|
|
ai2 |
-0.034 |
0.83 |
0.08 |
0.17 |
bi1 |
0.499 |
0.00 |
|
|
bi2 |
0.169 |
0.78 |
0.85 |
0.00 |
aii+bii |
0.96 |
|
0.94 |
|
Ri2 |
0.18 |
|
0.08 |
|
Note: i=1 for India and i=2 for USA. |
Section VIII
Conclusion
The study has analysed the various stages of the development
of corporate bond market in India in detail, with a cross-country
comparison. This study has found that the corporate bond market of
India is not deep. In Indian context, a combination of factors such as
procedural hassles, legal issues, and preference of the corporates for
private placement in issuance is not helping the cause of the corporate
bond market. Finding ways to make public offerings more attractive will
help to bring in the retail investors, and address the liquidity problem in
the secondary market of this segment.
The preliminary empirical analysis of the study reveals that the
corporate bond yield is positively correlated with the call rate (weighted
average call rate) and Government securities yield. However, corporate
bond yield is negatively correlated with equity return (BSE sensex).
Furthermore, the causality analysis shows that there is bidirectional
causality among the Government securities yield and corporate bond
yield. However, a unidirectional causality is found from Call rate,
Exchange rate and Inflation rate to corporate bond yield. In the next stage,
empirical analysis has used the GARCHM (1,1) methodology, and has
revealed that that the Indian corporate bond market has the capacity to
price the risks associated with it. Further, the SVAR application found
that, in deficit liquidity conditions, the monetary policy transmission is
pronounced in this segment. Finally, the VECH (1,1) model application
shows that this segment of Indian financial market is not integrated
with the overseas ones. Keeping in view lack of availability of research,
this study is an attempt to open further areas of research on this market.
It may be added that any work taking the yield of individual corporate
bond, would be highly helpful in taking the research on this area to
higher level.
References
Adikesavan, S. 2011. “Policy on ECBs Needs to Change”, The Hindu
Business Line, Sept 27.
Ahluwalia, Montak S. 1999. “India’s economic reforms-An appraisal”:
India in the era of Economic Reforms ,eds., Sachs J., Varshney A. and
Bajpai N.,USA: Oxford University Press,26-80.
Armour, J and Lele P. 2009. “Law, Finance and Politics: The Case of
India”, Law & Society Review, 43(3), 491-526.
Babu, G. R. and Sandhya T. 2009. “Indian FCCBs: Current Scenario”,15
Taxmann’s Corporate Professionals Today, 15,387-394.
Brooks, C. 2002. Introductory Econometrics for Finance. Cambridge
University Press.
Chakrabarti, R. 2010. “Bond markets”, Capital Markets in India, eds.
Chakrabarti R. and De S., India, Sage Publications, 121-176.
Doing Business Report (2013) World Bank.
Edwards, Amy K. 2006. “Corporate Bond Market Microstructure and
Transparency : the US Experience”; BIS Paper ,No 26,31-38.
Eichengreen, B. and Luengnaruemitchai P. 2004. “Why does not Asia
have bigger bond markets?” NBER working paper series,No.10576.
Engle, R. F. and Patton Andrew J. 2001. “What Good is A Volatility
Model?” Quantitative Finance, Taylor and Francis Journals, Vol. 1(2),
237-245.
Goswami, M. and Sharma S. 2011. “The Development of Local Debt
Markets in Asia, An Assessment”, ADBI working paper series /326.
Karunanayake, Indika., Abbas Valadkhani., Martin O’Brien 2009.
“Modelling Australian stock market volatility: a multivariate GARCH
approach”; University of Wollongong Economics Working Paper, 9-11.
Khan, H.R. 2012. “Corporate debt market: Developments, Issues and
Challenges”, FIICCI 9th Annual conference on Capital market, Mumbai.
Khanna, Vikramaditya and Varottil Umakanth 2012. “Developing
the Market for Corporate Bonds in India”; NSE Working Paper; WP/
6/2012.
Luengnaruemitchai, Pipat and Ong Li Lian 2005. “An anatomy of
corporate bond markets: Growing pains and knowledge gains”, IMF
working paper WP /05/152.
Mishkin, F. 2006. Economics of Money, Banking and Financial Markets,
Addison Wesley Publishing Company.
Misra, B.M. and Dhal S. 2009. “The Pricing of Risks in India’s Financial
Markets: A Garch Analysis”, RBI Staff studies.
Mukherjee, A. 2013. “Why India needs corporate bonds”, The Business
Standard, January 15.
Nath, G. C. 2012. “Indian corporate bonds market–An Analytical
perspective”, CCIL Rakshitra, June,7-33.
Prasanna, B. 2012. “A trading platform will help develop corporate
bond market”, The Economic times, September 5.
Ray, P. and Prabhu. E. 2013. “Financial Development and Monetary
Policy Transmission Across Financial Markets: What Do Daily Data
tell for India?”, Reserve Bank of India Working Paper series 04/2013.
Reddy, Y. V. 2002. “Developing bond markets in emerging economies-
Issues and Indian Experience”- Asian Conference, Bangkok, March 11.
Report on Currency and Finance, 2007
Report of High Level Expert Committee on Corporate Bonds and
Securitization (2005); Ministry of Finance, Govt. of India.
Securities and Exchange Board of India (Issue and listing of debt
securities) Regulations, 2008.
Sharma, V. K. and Sinha C. 2006. “The corporate debt market in India”
. BIS Papers, No 26, 80-87.
Sundaresan, S. 2006. “Developing multiple layers of financial
intermediation: the complementary roles of corporate bond markets
and banks”, BIS Papers, No.26, 24-30.
Rajaram, S. and Ghose P. 2011. “Indian Corporate Bond Market”; CCIL
Rakshitra, 5-24.
Shah, A. Thomas, S. and Gorham, M. 2008. “India’s financial Market:
An insider’s Guide to how the markets work”; Elsevier and IIT Stuart
Centre for Financial Markets Press.
Singh, G. 2011. “From the path of least resistance to path of dependence:
The political economy of India’s corporate bond market” (Unpublished).
Virmani, A. 2001. “India’s 1990-91 Crisis: Reforms, Myths and
Paradoxes”, Planning Commission of India working paper No. 4/2001
PC.
Virmani, A. 2006. “The dynamics of Competition: Phasing of Domestic
and External sector Liberalisation in India”, Planning commission of
India Working Paper No. 4/2006 PC.
|