India’s financial regulators are preparing a significant step toward strengthening the country’s debt markets. The Securities and Exchange Board of India (SEBI), in collaboration with the Reserve Bank of India (RBI), is working on the introduction of corporate bond index derivatives — a move aimed at widening participation and positioning bonds as a mainstream investment asset.
A Fresh Push for Bond Market Development
SEBI Whole-Time Member Ananth Narayan G confirmed that discussions with RBI on the proposed derivatives are progressing positively. He emphasized that aligning settlement systems and trading mechanisms with equity market standards could significantly enhance the appeal of corporate bonds to a wider investor base.
Currently, India’s secondary bond market lags far behind equities in terms of trading activity. Monthly bond market turnover stands at about ₹1.4 trillion, whereas the equity market witnesses transactions of a similar magnitude within just a single day. Bridging this gap is one of the key objectives driving the new initiative.
Building on Past Efforts
This is not the regulator’s first attempt at creating such instruments. In 2023, SEBI had already permitted futures trading on corporate bond indices comprising securities rated AA+ and above. However, those products struggled to attract meaningful liquidity and failed to gain traction among market participants.
The new SEBI–RBI collaboration seeks to correct that shortcoming by designing a more robust framework for index derivatives, one that can attract institutional and retail interest while ensuring smoother settlement and risk management practices.
Market Context: Strong Growth, Limited Participation
India’s corporate bond market has grown steadily over the past decade. The outstanding value of corporate bonds has nearly tripled, from ₹17.5 trillion in FY15 to ₹53.6 trillion as of March 2025. This surge reflects rising demand for long-term financing avenues in infrastructure, energy, and corporate expansion.
Yet, participation remains heavily concentrated among institutional investors such as banks, insurers, mutual funds, and provident funds. Retail investors and foreign participants continue to play only a limited role, leaving the market less diversified compared to developed economies.
Regulatory Reforms to Boost Investor Base
Over the last few years, SEBI has introduced a series of reforms aimed at democratizing access to corporate bonds:
- Bond Central: Launch of a centralised database to improve transparency and information access.
- Online Bond Platforms: Regulatory framework to streamline digital trading and improve investor confidence.
- Lower Entry Barriers: Reduction in the minimum investment size for privately placed bonds from ₹1 lakh to ₹10,000, making bonds more accessible to retail investors.
The introduction of bond index derivatives is expected to complement these reforms by creating hedging opportunities, enhancing liquidity, and fostering price discovery.
Outlook: Toward a More Balanced Capital Market
The renewed focus on corporate bond index derivatives comes at a time when India is actively pursuing alternative capital formation avenues beyond equity markets. If successful, the initiative could:
- Offer investors diversified risk management tools similar to equity derivatives.
- Improve liquidity and efficiency in bond trading.
- Attract greater retail and foreign participation, thereby reducing over-reliance on institutional players.
- Position India’s bond markets more competitively against global standards.
Summary:
The collaboration between SEBI and RBI marks a critical step toward transforming India’s debt market into a more vibrant and inclusive ecosystem. While previous attempts at bond derivatives struggled to gain traction, the strong structural reforms and regulatory clarity now in place may provide the right foundation for success.
As corporate bond issuances continue to grow and diversify, the introduction of corporate bond index derivatives could play a pivotal role in shaping the next phase of India’s capital market evolution.
Disclaimer:
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