Page 44 - Banking Finance May 2025

ARTICLE

look quite challenging. Comparing the issuances of Asian propensity to increase yields and crowd out private
Market along, we find India lagging its Eastern investment. Moreover, growing protectionism due to
counterparts. To retain the interest in the sovereign bond increasing geopolitical tensions may impact foreign investor
market India needs to realize that the eventual transition sentiment and lead to capital outflow and hardening of
must be adopted proactively to stay ahead of the curve and yields yet once again. What may function as a panacea to
maintain its elephant-like stature in the bond market. With these ailments is the rapid technological integration in all
India's commitment towards meeting its net zero target, occupations including the sovereign bond market. Blockchain
we may see the issuances transition rapidly in coming years and AI technologies could improve transparency and
as immense potential lays embedded in India's Sovereign efficiency in bond trading and settlement processes.
Bond Market.
E-platforms for government securities will enhance
Digital Intervention and Inclusion accessibility to foreign players as well thereby reducing costs.
There is likely to be an increasing focus on issuing longer-
What more can we expect in the sovereign bond market
space! It is the rise in investor education level and ease of tenor bonds to meet the needs of infrastructure financing
accessibility in these markets through the RBI retail direct and pension funds. Beyond traditional bonds, innovative
app. The digital revolution in India is testimony to the instruments like inflation-linked bonds and municipal bonds
endeavours the country has taken when it comes to financial may gain traction. Greater regulatory oversight and reforms
inclusion. With Banking within the reach of a common man could bolster trust and attract both domestic and
in a remote village, it is now the time for the debt market international investors.
to make a foray in the retail space. Owing to the sovereign
backing and risk-free return, these bonds provide a reliable Conclusion

avenue for individuals to invest their hard-earned money India's sovereign bond market stands at a pivotal juncture.
without the risk of losing out on the principal investment is With its elephantine presence in the financial ecosystem, it
held till the final redemption. is both a reflection of economic resilience and a vehicle for
future growth. Through strategic reforms and technological
The opening up of primary market issuance for retailers may integration, it can evolve into a robust, inclusive, and
see the growth equivalent to that of India's equity market globally competitive market, paving the way for sustainable
in days to come. The bond yields may not only soften development and financial innovation.
reducing the exchequers burden but also open avenue for
secondary market trading in the odd lot segment. As of In order to maintain dominance, India must embrace
today, a minimum tick size of Rs.5 Crore is traded by blockchain and AI for efficient bond trading, intrinsically
institutions and anything lower than the amount falls under promote retail participation through reforms in trading and
the odd lot category with limited takers. Individuals find it investment and most importantly transition swiftly to green
difficult to trade on NDSOM's (Negotiated Dealing System bonds in a massive way, aligning with net-zero targets. While
Anonymous Matching) secondary market platform with the challenges such as fiscal pressures and global uncertainties
same ease as that on the stock exchanges. However, with
persist, policy measures and structural reforms are expected
increasing investor awareness and greater retail to support the market's evolution into a more robust and
participation, the desired liquidity in the odd lot trading globally integrated ecosystem.
segment will get augmented.

The dark horse in the bid to deepen the bond market will Source:
be the concern of India's high fiscal deficit and debt-to-GDP Investor Presentation of PSU Banks, RBI website, The Mint
ratio. Sustained high borrowing requirements has the and Financial Express

Corrigendum
In the April 2025 issue of Banking Finance, an error occurred in the mention of the Governor of the Reserve Bank of India.
The name was incorrectly printed as Shaktikanta Das. The correct name is Sanjay Malhotra, the present Governor of the
Reserve Bank of India. We sincerely regret the oversight and any confusion it may have caused to our readers.
— Editor, Banking Finance

40 | 2025 | MAY | BANKING FINANCE