India’s capital market regulator has proposed allowing companies to offer special incentives to specific investor groups to boost retail participation in the corporate bond market.
In a consultation paper issued on Monday, the Securities and Exchange Board of India (Sebi) recommended incentives such as a high coupon rate or discounted prices for certain categories of investors, such as senior citizens, women, armed forces personnel, and retail subscribers.
The proposal aims to reverse the decline in public debt issuance, which fell from ₹19,168 crore in 2023-24 to ₹8,149 crore in 2024-25.
This is not the first time investors will be incentivized to participate in the Indian markets. The regulator permitted discounts for retail investors during offers for sale (OFS) in 2024.
Experts welcomed the move, saying the step could revive retail interest in debt markets that remain heavily dominated by institutional investors.
“In my view, these incentives should provide a much-needed boost to retail participation, which has traditionally been low because of low returns, lack of familiarity, and perceived complexity,” said Saurabh Bansal, founder of Sebi-registered investment advisor Finatwork Investment Advisor.
“These incentives can potentially help revive interest in corporate bonds, especially in crucial times when foreign capital outflows and declining primary market activity threaten market depth and vibrancy,” he added.
The details of the discount or percentage of the reservation are expected to be revealed upfront.
Relief for high-value debt listed entities
In a further revamp, Sebi also proposed a framework to reduce the compliance burden on companies with large debts by increasing the threshold for identifying high-value debt listed entities (HVDLE) to ₹5,000 crore.
An HVDLE is a public company with listed non-convertible debt securities currently valued at ₹1,000 crore or more. These entities are subject to enhanced corporate governance rules from Sebi to protect debenture holders and ensure stability, even if they don’t have listed equity.
Once designated as an HVDLE, a company is required to comply with governance standards similar to those of equity-listed firms, including the submission of quarterly governance reports, annual secretarial compliance reports, and adherence to board composition norms.
The regulator has noted that many of these debt issuances are private placements subscribed to by large institutional investors who are already protected by debenture trustees.
Stakeholders, including industry bodies, have argued that the current ₹1,000 crore threshold is too low, especially for large non-banking financial companies (NBFCs) for whom raising debt is a routine treasury operation.
The proposed change is positioned as a measure to improve the ease of doing business. If implemented, it would drastically reduce the number of companies subject to the stringent corporate governance norms that currently apply to HVDLEs.
The number of entities classified as HVDLEs would drop from 137 to just 48, freeing up nearly two-thirds of these companies from the enhanced compliance requirements.
Sebi has also proposed aligning corporate governance norms for HVDLEs with those applicable to equity-listed companies. Among the suggested changes is a revision in financial terminology, replacing the term “income” with “turnover” in defining material subsidiaries to maintain consistency with similar amendments made earlier for equity-listed entities.
Changes in director appointment norms
The regulator has also proposed requiring shareholders’ special approval before a director crosses the age of 75 years.
Further, it recommended excluding time taken for regulatory or statutory approvals from the timeline for obtaining shareholder consent for the appointment or reappointment of directors.
It also suggested exempting the requirement of shareholder approval for nominee directors appointed by financial regulators, courts, or tribunals.
Bansal described the move as a significant step toward regulatory rationalization. “For NBFCs and large debt issuers, it would reduce compliance burden while preserving appropriate safeguards for investors in high-value issues.”
