Sebi to reform corp bonds to reduce over-reliance on banks
MUMBAI: Sebi is pushing ahead with bond market reforms with plans for bond tokenisation pilots and a new regulatory framework for debt brokers, as it seeks to deepen corporate debt markets beyond their current narrow base of issues and investors. The regulator is looking at easing disclosure norms for debt-only issues.Noting that financing for business is still dominated by banks, Sebi chairman Tuhin Kanta Pandey said there was a need to develop bond market to reduce ‘over-reliance’ on banks. He was speaking at a seminar hosted by CareEdge Ratings. However, he said that since bonds carry credit and liquidity risks, development should move parallelly with investor education and governance.
Bond tokenisation is the process of converting a traditional bond into a digital token on a blockchain, enabling faster settlement, improved transparency, and easier trading in smaller units. Pandey said that the pilot “will test whether tokenisation can deliver faster settlement, better traceability, automated servicing and greater transparency.”Alongside this, the regulator is rethinking the intermediary landscape. “We are also exploring a distinct regulatory classification for debt brokers,” Pandey said, noting that such a move could “lower costs, reduce entry barriers and encourage dedicated debt market intermediaries.”The remarks come as Sebi looks to broaden participation and improve liquidity in a market still dominated by a handful of issuers and instruments. Pandey framed these reforms as part of a wider push to strengthen market infrastructure. “We are working towards further developing bond ETFs and derivatives on corporate bond indices,” he said, arguing these instruments could “improve liquidity” and “allow retail investors to access debt markets with smaller ticket sizes.”He also indicated a review of regulatory burdens, saying Sebi would examine “whether debt-only listed entities need the same rigour under LODR regulations as equity-listed companies.”On the supply side, the regulator is looking to widen the narrow issuer base, for which “Sebi and the stock exchanges will conduct bond issuer outreach programmes and engage directly with potential issuers,” Pandey said, with a focus on “SMEs and companies that are ready for the listed debt market but have not yet entered it.”However, Pandey said “four gaps stand out” in the market-concentration, a narrow issuer base, shallow secondary liquidity and low retail participation. He noted that “nearly 85-90% of bond issuances are rated AAA or AA,” while “around 70% of outstanding bonds come from financial entities.”“Corporate bond awareness [is] only 10%, with household penetration at less than 1%,” he noted, arguing that access and education must improve.
