Budget 2026 Aims to Rebalance India’s Financial System by Developing a Robust Corporate Bond Market
Budget 2026 introduces shifts to deepen India's corporate bond market, aiming to reduce the burden on commercial banks for long-term infrastructure financing. Currently, Indian banks carry 60-65% of all non-financial corporate debt, creating a maturity mismatch as they use short-term deposits to fund long-term projects. The budget proposes market-making frameworks, total-return swaps, and an Infrastructure Risk Guarantee Fund. By expanding the bond market, the government hopes to distribute long-term credit risk across institutional investors, making the financial system more resilient to shocks and freeing up bank credit for small and medium enterprises.
Key Points
- India's corporate bond market is less than 15% of GDP, significantly lower than the US (80%) or China (30%).
- Banks face 'maturity transformation' risks by funding 15-20 year infrastructure projects with short-term deposits.
- The government has injected over ₹3.2 lakh crore into public sector banks since 2017 to manage bad loans and stabilize the system.
- New instruments like REITs and bond-index derivatives are being promoted to attract institutional investors and improve market liquidity.
Exam Facts
- Corporate Bond Market Size: Less than 15% of GDP.
- Government Securities Outstanding: Approximately 90% of GDP.
- Proposed Fund: Infrastructure Risk Guarantee Fund.
- Bank Recapitalization: Over ₹3.2 lakh crore injected since 2017.
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