India: Corporate Bonds In India

Corporate Bonds are Bonds issued by private or public sector companies in order to borrow funds from the market. The Indian Companies Act, 1956 has not made any distinction between Corporate Bonds and Debentures. The term Debentures has been defined as follows1 "debenture includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not." Corporate Bonds can be issued by way of Public issue where the retail investors as well as institutions can participate in the issue or by way of Private Placement where only a limited number of investors participate in the issue. Corporate Bonds unlike equity shares don't guarantee an ownership in the Company but give regular income in the form of Interest. Corporate Bonds are generally issued for a period of 1 year to 20 years and they can also be Listed.

Corporate Bonds are differentiated on the basis of Maturity i.e. Short Term, Long Term or Medium Term; Coupon i.e. Fixed Rate, Floating Rate or Zero Coupon; Option i.e. Call Option or Put Option and Redemption i.e. Single redemption or Amortizing Bonds.


Some of the advantages of Corporate Bonds are

  • Corporate Bonds are useful for meeting the long term capital requirements of the corporate sector especially in those scenarios when the equity market is not working well or the Company doesn't wants to issue equity or preference shares.
  • The principal amount is safe as compared to investment in Equity Shares also there is regular income in the form of interest.
  • Issue of Corporate Bonds is beneficial for Infrastructure Companies as they require Capital for a long period as compared to other sectors.
  • Corporate Bonds help in reducing the overall cost of borrowings as compared to cost of borrowings from the Banks.
  • Long Term Capital can be effectively raised through issue of Bonds.
  • The rating of Bonds helps the investor to take an informed decision.
  • Rate of Interest is higher as compared to Bank Deposits.
  • In case of Listed Bonds there is Liquidity of Investment and Capital appreciation.

Although, Corporate Bonds have their own advantages they have not been able to get much popularity in the Indian markets. Some of the reasons for the slow growth of Corporate Bonds in India are

  • Investors have a feeling that investment in Banks or Government securities is safer as compared to investment in Corporate Bonds.
  • Issue of Bonds to Public at general involves procedural formalities and is time consuming on the other hand is borrowings from banks or a private placement is less complicated.
  • Banks are sometimes more interested in giving loans to Corporate rather then investing in the Bonds issued by Corporate.
  • Corporate Bonds issued by private sector Companies don not qualify for meeting the Statutory Liquidity Requirement(SLR) of the Banks which refrains the Banks from investing in Bonds issued by private Sector Companies.
  • The secondary market for Corporate Bonds is also not much developed as Institutional Investors like insurance Companies, Provident fund authorities and Banks hold the Corporate Bonds till their maturity which reduces their supply in the secondary market.

With a view to develop Corporate Bonds Market in India some of the measures which have been taken by the regulatory bodies are:

SEBI amended the SEBI (Disclosure and Investor Protection) Guidelines, 2000 in 20072. The Text of the Circular read as follows

  1. Requirement of Credit Rating: For public/ rights issues of debt instruments, SEBI (Disclosure and Investor Protection) Guidelines, 2000 presently stipulate credit rating to be obtained from not less than two credit rating agencies. With a view to reduce the cost of issuance of debt instruments, it has now been decided that credit rating from one credit rating agency would be sufficient.
  2. Below Investment Grade debt instruments: SEBI (Disclosure and Investor Protection) Guidelines, 2000 currently require that the debt instruments issued through a public/rights issue shall be of at least investment grade. In a disclosure based regime, it should be left to the investor to decide whether or not to invest in a non-investment grade debt instrument. Given this, and in order to develop market for debt instruments, it has been decided to allow issuance of bonds which are below investment grade to the public to suit the risk/return appetite of investors.
  3. Removal of Structural Restrictions: Further, in order to afford issuers with desired flexibility in structuring of instruments to suit their requirements, it has been decided that structural restrictions currently placed on debt instruments such as those on maturity, put/call option on conversion, etc shall be removed.

Also, in October 20093, SEBI issued a Circular vide which it was decided that trades in corporate bonds between specified entities, namely, mutual funds, foreign institutional investors/ sub-accounts, venture capital funds, foreign venture capital investors, portfolio mangers, and RBI regulated entities as specified by RBI shall necessarily be cleared and settled through the National Securities Clearing Corporation Limited (NSCCL) or the Indian Clearing Corporation Limited (ICCL) with effect from 1st December, 2009.

Some of the measures taken by Reserve Bank of India to develop the corporate debt market are as follows4 :

  1. To promote transparency in corporate debt market, a reporting platform was developed by FIMMDA and it was mandated that all RBI-regulated entities should report the OTC trades in corporate bonds on this platform. Other regulators have also prescribed such reporting requirement in respect of their regulated entities. This has resulted in building a credible database of all the trades in corporate bond market providing useful information for regulators and market participants.
  2. Clearing houses of the exchanges have been permitted to have a pooling fund account with RBI to facilitate DvP-I based settlement of trades in corporate bonds.
  3. Repo in corporate bonds was permitted under a comprehensive regulatory framework.
  4. Banks were permitted to classify their investments in non-SLR bonds issued by companies engaged in infrastructure activities and having a minimum residual maturity of seven years under the Held to Maturity (HTM) category;
  5. The provisioning norms for banks for infrastructure loan accounts have been relaxed.
  6. The exposure norms for PDs have been relaxed to enable them to play a larger role in the corporate bond market.
  7. Credit Default Swaps (CDS) have been introduced on corporate bonds since December 01, 2011 to facilitate hedging of credit risk associated with holding corporate bonds and encourage investors participation in long term corporate bonds.
  8. FII limit for investment in corporate bonds has been raised by additional US$ five billion on November 18, 2011 taking the total limit to US$ 20 billion to attract foreign investors into this market. In addition to the limit of US$ 20 billion, a separate limit of US$ 25 billion has been provided for investment by FIIs in corporate bonds issued by infrastructure companies. Further, additional US$ one billion has been provided to the Qualified Financial Institutions (QFI).
  9. The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity; and
  10. Further, as a measure of relaxation, QFIs have been now allowed to invest in those MF schemes that hold at least 25 per cent of their assets (either in debt or equity or both) in the infrastructure sector under the current US$ three billion sub-limit for investment in mutual funds related to infrastructure.
  11. Revised guidelines have been issued for securitisation of standard assets so as to promote this market. The guidelines focus on twin objectives of development of bond market as well as provide investors a safe financial product. The interest of the originator has been aligned with the investor and suitable safeguards have been designed.
  12. Banks have been given flexibility to invest in unrated bonds of companies engaged in infrastructure activities within the overall ceiling of 10 per cent;
  13. Bank has issued detailed guidelines on setting up of IDFs by banks and NBFCs. It is expected that IDFs will accelerate and enhance the flow of long-term debt for funding the ambitious programme of infrastructure development in our country.

Further, Reserve Bank of India in January, 20135 permitted credit Default Swap, an insurance against default, on unlisted but rated corporate bonds even for issues other than infrastructure companies.


Corporate Bonds command a higher price in those cases when interest rates have declined and if the original bonds have been issued at a interest rate which is higher then the rate of interest which is being offered on the newly issued Bonds and the value of Bonds falls in those cases when the interest rates rise and the rate of interest offered on new bonds is higher than the one available on the Old Bond.


Corporate Bonds are a good source to raise long term funds with lower borrowing cost as compared to Bank Loans. Corporate Bonds market in India is at a growing stage and measures are being taken by the regulatory bodies to boost the growth of Corporate Bonds market in India by making necessary amendment in the rules and regulations. There is also a need to create awareness among retail investors in order increase the investment in Corporate Bonds.


1 Section 2(12) of Indian Companies Act, 1956

2 Circular No. SEBI/CFD/DIL/DIP/29/2007/03/12 dated 3rd December, 2007

3 Circular No. SEBI/IMD/DOF-1/BOND/Cir-4/2009 dated 16th October, 2009

4 - Corporate Debt Market: Developments, Issues & Challenges, dated 15th October, 2012

5 Reserve Bank of India Notification No. RBI/2012-13/366, IDMD.PCD.No.10 /14.03.04/2012-13 dated 7th January, 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions