Bonding with Bonds

There is no doubt that the perception of individual investors helps shape the development of capital markets, including both equity and debt markets, in any country. Any feedback on this account would therefore be of immense interest and usefulness to policy-makers and other participants in the financial sector. In this context, the Third All-India Investors’ Survey by the Society for Capital Market Research and Development, New Delhi, published in January 2001, provides an insight into the retail market for bonds in the country and makes some suggestions for long-term development of the bond market.

Till the early 1990s, the government bond market was entirely a wholesale market, comprising banks, LIC, GIC, provident funds, etc, and households had no interest in buying the low-yielding bonds as the interest rates were administered. This did not allow the market for debt securities to develop. Only in 1992-93 the principle of issuing government loans at market-related rates was accepted to make them attractive to investors and the system of officially prescribing ceilings for interest rates on corporate bonds was also given up. More recently, the RBI and the finance ministry have taken several measures to develop the bond market in the country. It is now clearly recognised that a well developed debt market is necessary for stepping up investment in certain crucial sectors in the economy like infrastructure, which have to be financed by long-term debt.