India's Sovereign Bond Market: Opportunities to re-evolve

Bank treasuries in India play a pivotal role in the sovereign bond market, actively trading in a segment that dominates the country's financial landscape. Sovereign bonds, endowed with Statutory Liquidity Ratio (SLR) status, are indispensable for institutional portfolios. These instruments provide banks with a secure avenue to deploy surplus funds while reaping significant coupon interest-a reliable revenue stream regardless of prevailing interest rate trends.

- Neha Nidhi Chief Manager Union Learning Academy Corporate & Treasury Union Bank of India

Bank treasuries in India play a pivotal role in the sovereign bond market, actively trading in a segment that dominates the country's financial landscape. Sovereign bonds, endowed with Statutory Liquidity Ratio (SLR) status, are indispensable for institutional portfolios. These instruments provide banks with a secure avenue to deploy surplus funds while reaping significant coupon interest-a reliable revenue stream regardless of prevailing interest rate trends. Furthermore, their insulation from volatile market-based valuations enhances their appeal, making them a cornerstone for financial stability.

The sovereign bond market boasts daily trading volumes of approximately Rs. 50,000 crores, underlining its scale and liquidity. In the Indian financial ecosystem, it is the 'elephant in the room'-overshadowing higher-yield but riskier securities. Its intrinsic role in funding economic growth has cemented its dominance, a status achieved through a century-long evolution and adaptation. However, the bond market today is at a crossroads, calling for innovation, depth, and increased retail participation to sustain its momentum.

Evolution of Public Debt in India: A Historical Perspective

The Pre-Independence Era

In the 18th century, the financial needs of Indian princely states were primarily met by indigenous bankers and financiers, who provided loans and credit for governance and military campaigns. The concept of borrowing from the public was introduced by the East India Company to finance its campaigns in South India, notably during the AngloFrench wars.