Regulation, Retail Access, and the Future of India’s Corporate Bond Market

Regulatory reforms have played a defining role in shaping the modern Indian corporate bond market. Over the past decade, policymakers have focused on improving transparency, strengthening recovery mechanisms, and expanding investor participation. These reforms are especially relevant for individuals seeking to invest in bond markets with greater confidence and institutional safeguards.

Insolvency and Bankruptcy Code: A Structural Reset

The introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 marked a watershed moment for India’s credit ecosystem. By establishing a time-bound resolution framework, the IBC significantly improved recovery outcomes for creditors and enhanced accountability among borrowers.

Over the years, the IBC has resolved several large stressed assets, improving recovery rates and reinforcing discipline in credit markets. Rating agencies now incorporate stronger recovery expectations into credit assessments, contributing to improved investor confidence.

Liquidity Backstops and Market Stability

One of the lessons from past market disruptions was the need for liquidity support mechanisms. The Corporate Debt Market Development Fund (CDMDF), established by SEBI, acts as a backstop facility during periods of market stress, allowing mutual funds to offload investment-grade corporate bonds at fair market prices.

This mechanism enhances secondary market confidence and reduces the risk of disorderly sell-offs during periods of systemic stress.

Expanding Bank Participation in Corporate Bonds

Recent regulatory changes by the Reserve Bank of India allowing banks to classify corporate bonds under the Held-to-Maturity (HTM) category are expected to deepen the corporate bond market. This move removes earlier holding constraints and encourages banks to participate more actively in long-term corporate bond financing.

Increased bank participation is expected to lower borrowing costs for corporates and improve market liquidity over time.

Credit Default Swaps and Risk Management

India’s credit default swap (CDS) market has historically remained underdeveloped due to limited participation and illiquid underlying bonds. Regulatory changes have expanded the pool of CDS participants to include insurers, pension funds, AIFs, and mutual funds.

A functional CDS market will enhance risk management, improve price discovery, and encourage investment in lower-rated bonds by allowing credit risk transfer.

Retail Investor Access and Market Democratization

Historically, India’s corporate bond market was dominated by institutional investors due to high face values and private placements. SEBI’s decision to reduce the face value of corporate bonds to ₹10,000 significantly lowered entry barriers for retail investors.

Additionally, the regulation of Online Bond Platform Providers (OBPPs) has improved transparency and compliance, offering retail investors structured access to bond markets.

Market Infrastructure and Risk Transparency

Several infrastructure reforms have strengthened market resilience. The introduction of Limited Purpose Clearing Corporations (LPCCs) has improved repo market participation, while the Potential Risk Class (PRC) matrix helps investors understand credit and interest rate risks in debt mutual funds.

Minimum liquidity requirements for mutual funds further enhance investor protection during periods of heightened redemption pressure.

Retail Bond Access

As regulatory reforms open doors for retail participation, Altifi bridges the gap between institutional bond markets and individual investors. By offering compliant access, simplified documentation, and transparent issuer information, Altifi enables investors to participate confidently in corporate bond markets aligned with their risk appetite.

Conclusion

India’s corporate bond market is transitioning into a more transparent, resilient, and inclusive ecosystem. Regulatory reforms have strengthened credit discipline, expanded liquidity support, and improved retail access. As infrastructure and policy frameworks mature, investors can increasingly invest online in corporate bonds as part of a diversified and well-regulated investment strategy.