India's corporate bond market has witnessed significant growth over the past decade, driven by regulatory reforms, digital platforms, and increased retail participation. However, experts highlight the need for improved liquidity, greater foreign investment, and a more vibrant market for lower-rated corporate debt to sustain this momentum.
According to CareEdge Ratings, outstanding corporate bond issuances have surged from around Rs 11 trillion in FY12 to nearly Rs 59 trillion in FY26, marking a compound annual growth rate (CAGR) of 13.1%. Despite this growth, banks remain the dominant source of corporate financing, with the non-financial commercial sector mobilizing nearly Rs 45 trillion in FY26, of which 65% came through non-food bank credit.
The market depth remains uneven, with AAA-rated securities accounting for 58% of issuances in FY26, while AA-rated bonds contributed another 19%. Lower-rated issuances are limited due to investment restrictions on insurance companies and pension funds, and foreign participation is modest, with FPIs holding only 5.4% of outstanding bonds.
“Smaller tickets are a clear sign that first-time investors are now active in a market once measured in crores per trade.”
Aditi Mittal, Co-Founder of IndiaBonds
Reforms have played a crucial role in broadening the market. Key measures include the RBI's removal of concentration limits for foreign investors, SEBI's allowance for AIFs in the CDS market, and the introduction of derivatives linked to AA+ and above-rated corporate bond indices. These efforts aim to enhance liquidity and provide investors with hedging tools.
Retail participation has also increased, with bond trades more than doubling from 11.9 lakh in FY25 to 28.4 lakh in FY26. The average trade size declined by nearly 46% to around Rs 78 lakh, indicating the entry of first-time investors. Product innovation, such as Sovereign Green Bonds and sustainability-linked bonds, has further diversified investment options.
“Regulatory reforms have largely focused on strengthening investor protection, improving transparency and widening participation in the corporate bond market.”
Sarbartho Mukherjee, Senior Economist at CareEdge Ratings
Background
India's bond market has historically been dominated by banks, with limited participation from foreign investors and lower-rated issuances. Recent reforms and increased retail participation have begun to change this landscape, offering new opportunities for diversification and growth.
Looking ahead, the focus will be on enhancing secondary market liquidity, attracting more foreign investors, and expanding the market for lower-rated debt. These steps are essential to complement the banking system and provide a broader range of financing options for companies.
