Sebi Chief Tuhin Kanta Pandey Backs Bond ETFs and Tokenisation as Debt Fundraising Nears Rs 9 Lakh Crore
India’s corporate bond market is at a turning point. The total amount of debt raised by companies is nearing Rs 9 lakh crore. This is a big number. It shows that businesses are borrowing more from the bond market instead of just banks. But the market still has room to grow. That is why the chairman of the Securities and Exchange Board of India, or Sebi, Tuhin Kanta Pandey, has called for deeper development of this market.
Pandey spoke recently about the need to make the corporate bond market stronger. He said this is important for long-term economic growth. He highlighted several new ideas. These include bond exchange-traded funds, better disclosures, and pilot projects for tokenisation. He also urged more retail investors to participate. And he said India should reduce its heavy dependence on bank loans.
Why the Corporate Bond Market Matters
Corporate bonds are loans that companies take from investors. Instead of going to a bank, a company issues a bond. Investors buy that bond. In return, the company pays interest. At the end of the bond’s life, the company returns the principal amount. This is a key way for businesses to raise money for expansion, new projects, or daily operations.
In India, most companies still rely on banks for loans. But this creates a problem. If banks face trouble, the whole economy can slow down. A strong bond market spreads the risk. It also gives companies more options. For example, a large infrastructure company might need Rs 1,000 crore for a new highway. Instead of asking one bank, it can issue bonds to many investors. This makes the system more stable.
Bond ETFs: A Simple Way for Retail Investors
One of the key proposals from Pandey is bond exchange-traded funds, or bond ETFs. An ETF is a basket of bonds that trades on a stock exchange, just like a share. This makes it easy for ordinary people to invest in bonds. Right now, buying a single corporate bond can be complicated. You need a large amount of money. You also need to understand credit ratings and maturity dates.
With a bond ETF, you can buy a small piece of many bonds at once. For example, a retail investor with just Rs 500 can invest in a bond ETF. This is much simpler. It also spreads risk. If one bond in the ETF defaults, the loss is small. Pandey believes bond ETFs can bring more retail money into the debt market. This will help companies raise funds more easily.
Tokenisation: The Future of Bond Trading
Another exciting idea is tokenisation. This means converting a bond into a digital token on a blockchain. A blockchain is a secure digital ledger. Tokenisation can make bond trading faster, cheaper, and more transparent. For example, if a company issues a bond worth Rs 100 crore, it can be split into many small tokens. Investors can buy and sell these tokens easily. Settlement can happen in minutes instead of days.
Sebi has already started pilot projects for tokenisation. Pandey said these pilots will test how the technology works in real markets. If successful, tokenisation could open the bond market to many more investors. It could also reduce paperwork and errors. This is a big step towards modernising India’s financial system.
Stronger Disclosures and Retail Participation
Pandey also stressed the need for better disclosures. When companies issue bonds, they must share information about their finances. But sometimes this information is not clear or timely. Stronger disclosure rules will help investors make better decisions. For example, if a company is facing a cash crunch, investors should know early. This can prevent sudden defaults.
Retail participation is another focus area. Currently, most bond buyers are big institutions like mutual funds, insurance companies, and pension funds. Individual investors are a small part. Pandey wants to change this. He believes that with simpler products like bond ETFs and better education, more retail investors can join. This will make the market deeper and more liquid.
Reducing Dependence on Bank Financing
Finally, Pandey called for reduced dependence on bank-led financing. In India, banks provide about 70% of corporate funding. In developed countries like the United States, the bond market plays a much bigger role. A heavy reliance on banks can be risky. If banks tighten lending, companies may struggle to get funds. A strong bond market provides an alternative. It also encourages competition, which can lower borrowing costs for companies.
For example, during the COVID-19 pandemic, many companies in India found it hard to get bank loans. But those with good credit ratings could still raise money through bonds. This shows the importance of a diversified funding system.
What This Means for Investors
For general investors, these developments are good news. Bond ETFs and tokenisation will make it easier to invest in debt. You will have more choices. You can earn regular interest without the complexity of buying individual bonds. At the same time, stronger disclosures will protect your money. As the market grows, you may also see better returns.
Pandey’s vision is clear. He wants India’s corporate bond market to become a pillar of the economy. With debt fundraising already near Rs 9 lakh crore, the foundation is strong. Now, with new tools and more participation, the market can reach its full potential. For investors, this is a trend worth watching.
