Bond Market Deepening through Retail Participation Crucial for NBFC Funding Diversification

India's Corporate Bond Market Emerges as Key Funding Avenue for NBFCs and REITs

The Indian corporate bond market is gradually becoming a critical source of funding for non-banking financial companies (NBFCs) as well as REITs and InvITs. Industry executives have highlighted liability diversification, longer-tenure funding, and rising retail participation as key themes shaping the market's next phase of growth.

Industry leaders spoke at the CNBC TV18 India Fixed Income Summit on May 25, discussing corporate bond markets and NBFC liability diversification. They noted that bond issuances are increasingly helping NBFCs reduce their dependence on traditional bank funding while improving asset-liability management.

Diversification of capital sources is a primary focus for the industry, with bond markets offering longer-tenure funding compared to banks. Executives pointed to faster interest rate transmission in bond markets relative to bank borrowing.

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Parag Sharma, MD and CEO of Shriram Finance, noted that despite market concerns about the penetration of bonds in the retail market, his firm has seen significant participation from retail investors in Tier-III and Tier-IV markets for debt products.

Preeti Chheda, chief financial officer of K Raheja Corp Investment Managers, which manages Mindspace Business Parks REIT, highlighted the rapid evolution of alternative yield products such as REITs and InvITs. These products, she said, bridge the gap between debt and equity by offering both regular income and capital appreciation. Assets managed under these structures have seen significant growth over the past decade.

Retail participation emerged as a recurring theme during the discussion. Sachin Pillai, MD and CEO of Hinduja Leyland Finance, emphasized the importance of transparency and improved disclosure standards in broadening India's bond investor base. He suggested a campaign akin to Mutual Funds Sahi Hai by AMFI to promote bond investments.

Industry leaders also stressed the need for greater investor education around risk-adjusted returns, arguing that bond investments should not be driven solely by headline yields.

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While India's corporate bond market remains largely institution-driven, participants said the momentum toward a deeper and more diversified market structure has clearly begun.