Strengthening India’s Bond Market
Image Source: LiveMint By Pavithra Manoj, The bond market in India is still not completely developed, even after several committees being formed throughout the years to augment the bond market. This means that the bond market is unable to share the credit burden that the banking system in India is currently facing. Since there is an absence of a well functioning bond market in the country, it is the banks and the government that take on the task of financing infrastructural projects like roads, airports, bridges and ports. This puts the banks under pressure, since they are buying into long-term assets such as bridges or highways that have a long gestation period, while they entertain short-term liabilities such as deposits of 3–5 years. This invariably creates an asset liability mismatch. This in turn leads to inefficient resource allocations on the banks’ part and ultimately weakens their balance sheet. This pressure, then, is reflected in the increase in bad loans among...