The Securities and Exchange Board of India (Sebi) is advancing bond market reforms with plans for bond tokenisation pilots and a new regulatory framework for debt brokers, aiming to deepen corporate debt markets beyond their current narrow base of issuers and investors. The regulator is also considering easing disclosure norms for debt-only issuers.
Reducing Reliance on Banks
Speaking at a seminar hosted by CareEdge Ratings, Sebi chairman Tuhin Kanta Pandey noted that financing for businesses is still dominated by banks, emphasizing the need to develop the bond market to reduce 'over-reliance' on banks. However, he cautioned that since bonds carry credit and liquidity risks, development must proceed alongside investor education and governance improvements.
Bond Tokenisation Pilots
Bond tokenisation involves converting a traditional bond into a digital token on a blockchain, enabling faster settlement, improved transparency, and easier trading in smaller units. Pandey stated that the pilot will test whether tokenisation can deliver faster settlement, better traceability, automated servicing, and greater transparency.
New Regulatory Framework for Debt Brokers
The regulator is rethinking the intermediary landscape, exploring a distinct regulatory classification for debt brokers. Pandey noted that such a move could lower costs, reduce entry barriers, and encourage dedicated debt market intermediaries.
Broadening Participation and Liquidity
These remarks come as Sebi looks to broaden participation and improve liquidity in a market still dominated by a handful of issuers and instruments. Pandey framed these reforms as part of a wider push to strengthen market infrastructure. He mentioned working towards further developing bond ETFs and derivatives on corporate bond indices, arguing these instruments could improve liquidity and allow retail investors to access debt markets with smaller ticket sizes.
Review of Regulatory Burdens
Pandey also indicated a review of regulatory burdens, stating that Sebi would examine whether debt-only listed entities need the same rigour under LODR regulations as equity-listed companies.
Widening the Issuer Base
On the supply side, the regulator is looking to widen the narrow issuer base. Sebi and the stock exchanges will conduct bond issuer outreach programmes and engage directly with potential issuers, with a focus on SMEs and companies that are ready for the listed debt market but have not yet entered it.
Addressing Market Gaps
Pandey identified four gaps in the market: concentration, a narrow issuer base, shallow secondary liquidity, and low retail participation. He noted that nearly 85-90% of bond issuances are rated AAA or AA, while around 70% of outstanding bonds come from financial entities. Corporate bond awareness is only 10%, with household penetration at less than 1%, he argued, stressing that access and education must improve.
