Innovative Strategies to Boost India's Corporate Bond Market

Parag Sharma of Shriram Finance suggests bundling corporate bonds to enhance participation in India's debt market. This approach aims to support smaller issuers and attract varied investors, fostering a more inclusive market environment.

Issuing corporate bonds in bunches can help small and low-rated entities widen investor participation and deepen India's debt market, a top official of non-bank lender Shriram Finance said on Tuesday.

''To bring smaller issuers to the market, issuances can be bunched up, similar to structures seen in securitisation, where smaller issuers pool their issues to create larger ticket sizes for broader participation,'' said Parag Sharma, managing director and chief executive of Shriram Finance.

Speaking at the CareEdge's Debt Market Summit 2026 here, he further said that deeper participation in the debt market may also require supportive measures, such as credit enhancement, liquidity support, and stronger market-making mechanisms, similar to frameworks adopted in some developed and Asian markets.

At present, over three-fourths of bond issuances in the corporate debt market are dominated by companies with AA and above ratings. Smaller companies, which are typically low on rating, may struggle to get the investor response because of their rating as well as the size of the issuance.

Outstanding corporate bond issuances increased to Rs 59 lakh crore in FY26, from around Rs 11 lakh crore in FY12, registering a CAGR of 13.1 per cent, according to the CareEdge report.

The non-financial commercial sector mobilised nearly Rs 45 lakh crore in FY26, of which around 65 per cent was sourced from the banking sector through non-food bank credit, 24 per cent came from other domestic non-bank sources, and the remaining 11 per cent from foreign sources.

Investors in India's corporate bond market are largely dominated by domestic institutions, with corporates accounting for around 32 per cent of total holdings, followed by insurance companies (19.5 per cent), mutual funds (12.9 per cent), and banks (9.2 per cent). Foreign participation, however, remains relatively limited, with foreign portfolio investors (FPIs) accounting for only 5.4 per cent of total holdings.

Investments in the corporate bond market remain heavily skewed towards highly rated instruments, with AAA-rated papers accounting for 58 per cent of total issuances in FY26 (as of November 2025). This was followed by AA-rated papers, which constituted 19 per cent of total issuances, while only 24 per cent of issuances were rated AA or below.

Since insurance companies and pension funds are permitted to invest only in instruments rated AA or above, a significant share of issuances remains concentrated within these higher-rated categories. This further accentuates the challenge of a narrower market for lower-rated debt securities, the report added.

Sharma noted that while overall debt market activity remains positive and issuance sizes are increasing, institutional investors such as mutual funds and insurance companies continue to display risk aversion, with a preference for AAA-rated instruments.