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DEBT MARKET
Overview
History of Debt Market
Market Structure
Debt Product Your results on : Debt Market | Debt Product
Debt Product
The instruments traded can be classified into the following segments based on the characteristics of the identity of the issuer of these securities.
Issuer Instrument Maturity Investors
Central Government Dated Securities 2-30 Years RBI, Banks, Insurance Companies, Provident Funds, Mutual Funds, PDs, Individuals.
Central Government T-Bills 91/182/364 days RBI, Banks, Insurance Companies, Provident Funds, Mutual Funds, PDs, Individuals.
State Government Dated Securities 5-13 Years RBI, Banks, Insurance Companies, Provident Funds, Mutual Funds, PDs, Individuals.
Central Government Dated Securities 2-30 Years RBI, Banks, Insurance Companies, Provident Funds, Mutual Funds, PDs, Individuals.
PSUs Bonds, Structured Obligations 5-10 years Banks, Insurance Companies, Corporate, Provident Funds, Mutual Funds, Individuals.
Corporate Debentures 1-12 Years Banks, Corporate, Mutual Funds, Individuals.
Corporate, PDs Commercial Papers 7 Days to 1 year Banks, Corporate, Financial Institutions, Mutual Funds, Individuals, FIIs
Scheduled Commercial Banks Certificates of Deposits (CDs) 7 Days to 1 year Banks, Corporations, Individuals, Companies, Trusts, Funds, Association, FIs, NRIs
Financial Institutions 1 year to 3 year
Scheduled Commercial Banks Bank Bonds 1-10 Years Corporations, Individuals, Companies, Trusts, Funds, Association, FIs, NRIs
Municipal Corporation Municipal Bonds 0-7 Years Banks, Corporations, Individuals, Companies, Trusts, Funds Association, FIs, NRIs
Commercial Paper (CP): They are primarily issued by corporate entities. It is compulsory for the issuance of CPs that the company be assigned a rating of at least P1 by a recognized credit rating agency. An important point to be noted is that funds raised through CPs do not represent fresh borrowings but are substitutes to a part of the banking limits available to them.
Certificates of Deposit (CD): While banks are allowed to issue CDs with a maturity period of less than 1 year, financial institutions can issue CDs with a maturity of at least 1 year. The prime reason for an active market in CDs in India is that their issuance does not warrant reserve requirements for bank.
Treasury Bills (T-Bills): T-Bills are issued by the RBI at the behest of the Government of India and thus are actually a class of Government Securities. Presently T-Bills are issued in maturity periods of 91 days, 182 days and 364 days. Potential investors have to put in competitive bids. Non-competitive bids are also allowed in auctions (only from specified entities like State Governments and their undertakings, statutory bodies and individuals) wherein the bidder is allotted T-Bills at the weighted average cut off price.
Long-term debt instruments: These instruments have a maturity period exceeding 1year. The main instruments are Government of India dated securities (GOISEC), State Government securities (state loans), Public Sector Undertaking bonds (PSU bonds) and corporate bonds/debenture. Majority of these instruments are coupon bearing i.e. interest payments are payable at pre specified dates.
Government of India dated securities (GOISECs): Issued by the RBI on behalf of the Central Government, they form a part of the borrowing program approved by Parliament in the Finance Bill each year (Union Budget). They have a maturity period ranging from 1 year to 30 years. GOISECs are issued through the auction route with the RBI pre specifying an approximate amount of dated securities that it intends to issue through the year. But unlike T-Bills, there is no pre set schedule for the auction dates. The RBI also issues products other than plain vanilla bonds at times, such as floating rate bonds, inflation-linked bonds and zero coupon bonds.
State Government Securities (state loans): Although these are issued by the State Governments, the RBI organizes the process of selling these securities. The entire process, 17 right from selling to auction allotment is akin to that for GOISECs. They also form a part of the SLR requirements and interest payment and other modalities are analogous to GOISECs. Although there is no Central Government guarantee on these loans, they are believed to be exceedingly secure. One important point is that the coupon rates on state oans are slightly higher than those of GOISECs, probably denoting their sub-sovereign status.
Public Sector Undertaking Bonds (PSU Bonds): These are long-term debt instruments issued generally through private placement. The Ministry of Finance has granted certain PSUs, the right to issue tax-free bonds. This was done to lower the interest cost for those PSUs who could not afford to pay market determined interest rates.
Bonds of Public Financial Institutions (PFIs): Financial Institutions are also allowed to issue bonds, through two ways - through public issues for retail investors and trusts and secondly through private placements to large institutional investors.
Corporate debentures: These are long-term debt instruments issued by private companies and have maturities ranging from 1 to 10 years. Debentures are generally less liquid as compared to PSU bonds.
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