India's corporate bond market has achieved a historic milestone with debt market fundraising reaching nearly ₹9 lakh crore in FY26, according to Sebi chairman Tuhin Kanta Pandey. Speaking at the Care Edge Debt Market Summit 2026 in Mumbai, Pandey emphasized that this represents almost double the equity market fundraising and demonstrates the growing importance of market-based financing. The chairman noted that nearly ₹7 lakh crore had flowed into India's capital markets in FY25, highlighting the rapid expansion of debt market participation and the need for continued regulatory support. Outstanding corporate bonds have increased from around ₹17.5 lakh crore at the end of FY16 to over ₹59 lakh crore currently, reflecting a compound annual growth rate of around 12%, as reported by Business Standard.
The shift toward corporate bonds has accelerated significantly with the rise of online platforms, as retail participation has risen rapidly but investor understanding of bond risks has not kept pace. According to a September 2025 report by Assocham and Crisil Intelligence, the number of clients registered with Online Bond Platform Providers (OBPPs) rose to 560,000 in fiscal year 2025 from 350,000 in FY24, with monthly average retail volumes growing at a compounded annual growth rate of around 20% since OBPPs were introduced in 2022. As reported by Mint, retail investors are often drawn to the very yields that signal elevated risk, with companies offering coupons of 10-12% often because institutional investors are unwilling to lend at lower rates. Market participants warn that once you're below AA, the institutional door starts closing, making higher coupons compensation for risks that larger investors have already rejected.
The Securities and Exchange Board of India (Sebi) is launching bond tokenisation pilots to modernize corporate debt markets and reduce reliance on traditional banking financing. According to reports from The Times of India, Sebi chairman Tuhin Kanta Pandey announced that the pilot will test whether tokenisation can deliver faster settlement, better traceability, automated servicing and greater transparency. As reported by Mint, Pandey emphasized that "the pilot will test whether tokenization can deliver faster settlement, better traceability, automated servicing and greater transparency. Once you do that, there will be a greater possibility of more liquidity." The process involves converting traditional bonds into digital tokens using blockchain framework, with each token representing ownership of a portion of the bond. Unlike traditional bonds, which pass through layers of intermediaries, tokenised bonds can be issued, traded, and settled digitally with complete transaction records that anyone can verify in real time. For retail investors, the most significant change is accessibility through fractional ownership, allowing investors to gain exposure to fixed income without committing large sums, as noted by Grip Invest founder Nikhil Aggarwal.
While bond tokenisation offers significant benefits, several key risks remain that require careful consideration. According to Mint analysis, the biggest risks are not the technology itself but the infrastructure built on top of it. SEBI has flagged concerns that future quantum machines could break cryptographic algorithms securing the blockchain, potentially compromising the entire system of record. Operational interoperability between legacy depository systems and new blockchain infrastructure remains untested at scale, creating additional operational challenges. Regulatory clarity is another major gap, as India still lacks a comprehensive legal framework defining ownership rights, dispute resolution, and investor protection for tokenised bonds, as noted by Mudrex head Prateek Gupta. Liquidity may also remain a challenge initially, as tokenised bond markets will only be effective if participation scales meaningfully, with secondary market depth limited in early pilot stages.
To address the narrow issuer base, Sebi and stock exchanges will conduct bond issuer outreach programmes and engage directly with potential issuers, with a focus on SMEs and companies ready for listed debt markets. As reported by The Times of India, Pandey indicated that Sebi would examine whether debt-only listed entities need the same rigour under LODR regulations as equity-listed companies. The regulator is also working toward further developing bond ETFs and derivatives on corporate bond indices to improve liquidity and allow retail investors access with smaller ticket sizes. According to Business Standard, Sebi is also exploring a separate regulatory classification for debt brokers to reduce costs and encourage specialised intermediaries in the bond market. Additionally, Sebi is developing exchange-traded funds linked to bonds to improve retail participation and accessibility in fixed-income products.
