KOCHI: India is preparing to expand the toolkit for its corporate debt market, with regulators exploring the introduction of corporate bond index derivatives, a move that could deepen the market, attract retail and foreign investors, and ease pressure on banks’ corporate lending portfolios.
The Securities and Exchange Board of India (Sebi) is working closely with the Reserve Bank of India (RBI) to encourage trading in these derivatives.
Unlike equities, where daily trading volumes easily reach Rs1.4 trillion, the secondary corporate bond market remains relatively thin, dominated by institutional players such as banks, insurers, provident funds, and mutual funds.
Retail and foreign participation has been minimal, highlighting the need for more innovative instruments to broaden access.
Corporate bond index derivatives are designed to track the performance of a basket of high-rated bonds, enabling investors to hedge risks, speculate, or gain diversified exposure without buying individual bonds.
Sebi had allowed exchanges to launch such futures in 2023, but uptake has been limited so far. By aligning bond market platforms and settlement processes with those of equities, the new framework aims to make bond trading more efficient, liquid, and attractive for a wider range of investors.
The move comes at a time when India’s outstanding corporate bonds have nearly tripled over the past decade, from Rs17.5 trillion in FY15 to Rs53.6 trillion in March 2025. Despite this growth, the market’s limited depth has constrained options for risk management and investment diversification, especially for retail participants.
Experts say derivatives could not only enhance liquidity but also reduce dependence on banks for corporate financing, potentially easing credit pressures and supporting capital formation.
Minimum investment
In addition to index derivatives, Sebi has taken multiple steps to broaden participation, including establishing a central database for corporate bonds, introducing norms for online bond platforms, and lowering the minimum investment for privately placed bonds from Rs100,000 to Rs10,000.
These measures signal a strategic push to make corporate bonds a more prominent and accessible asset class in India’s financial system.
“The broader point is this: developing alternate asset classes is not optional anymore; it is an imperative for sustained capital formation,” said Ananth Narayan G, Sebi whole-time member, highlighting the urgency of building a more diversified debt market.
With these initiatives, corporate bond index derivatives could become a key tool for market participants, bridging the gap between retail investors, banks, and large corporates, and potentially reshaping India’s corporate debt landscape over the coming years.
