The public issuance of non-convertible debentures (NCDs) has significantly slowed down due to heightened regulatory scrutiny, particularly by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). According to SEBI data, Indian companies raised only Rs 5,526 crore in public NCD issues from April to October 2023, which marks a 59% decrease compared to the same period last year. Public issues allow companies to borrow from the general public by offering debt securities, as opposed to private placements, which are targeted at select institutional investors.

One of the main reasons for the slowdown is SEBI’s action against merchant bankers. In March, SEBI barred JM Financial Ltd. from conducting debt merchant banking business due to regulatory lapses during a public issue. This was followed by another regulatory setback in September, when SEBI prohibited Axis Capital from undertaking new debt merchant banking work. These actions have significantly impacted market sentiment and slowed down planned public issuances.

Additionally, the RBI has been focused on curbing the rapid growth of non-banking financial companies (NBFCs), warning them about rising credit growth. As a result, NBFCs have faced a slowdown in disbursements, reducing their need for public NCD issues. The ban on frequent issuers such as IIFL Finance, which was barred from gold loan operations earlier this year, has also contributed to the gap in the market.

While public NCD issuances have declined, the private placement of bonds has seen an increase. From April to October 2023, the amount raised through private placements grew to Rs 6 lakh crore, up from Rs 5 lakh crore during the same period last year. Experts believe that this shift is due to private placements being less costly and more flexible, as issuers can structure bonds with lower face values, which attracts more interest. Furthermore, the rise of online bond platforms has made private placements more attractive to issuers.