SEBI Moves To Revive Bond Market Via Incentives

On Oct 27, 2025, the SEBI (Securities and Exchange Board of India), in their new consultation paper unveiled a major strategic plan related to debt securities. The securities markets regulator has its eye on revitalising the Indian corporate bond market. SEBI has indicated a two-pronged attack in the said consultation paper.

• The first one is to attract the retail investors by allowing the issuers to offer special incentives.
  
• Second is to considerably boost the issuers’ volume by easing debt-listed companies’ compliance burden.
  

This strategic move is in alignment with SEBI’s annual report. The report showed alarming data of plummeting NCD (Non-Convertible Debentures) public issuances. The amount has considerably declined from ₹19,168 crore in FY24 to a mere ₹8,149 crore in FY25. Therefore, there was an urgent need to focus on making reforms for the regulator. The comments of this proposal are due by Nov 17, 2025. However, is this a comprehensive solution to bring both issuers and investors back to the public debt market?

Why Is SEBI Rolling Out The Red Carpet For Retail?

There’s a marked collapse in public debt issuances. With the annual report and the debt issuance numbers, it is clear that the debt market is struggling. SEBI, with its new proposal, is aiming to tackle this ‘demand-side’ challenge head-on. It is considering allowing issuers to make their NCDs more attractive to investor categories.

SEBI is planning to amend existing regulations to permit issuers, at their discretion, to offer incentives to certain groups. These sops could take different forms.

• Higher coupon rate
• Discount on the issue price

The target for these incentives can be specific categories of allottees. These can include senior citizens, women, armed forces personnel (serving, ex-servicemen & their widows), and general retail subscribers.

However, this is a familiar playbook for different regulators. SEBI's consultation paper itself had noted that this practice is already proven successful in other financial sectors.

Banks and NBFCs have been routinely offering higher fixed deposit rates to senior citizens. Airlines too provide discounts to armed forces personnel.

Even within the capital markets, the OFS (Offer For Sale) framework already exists to allow promoters to offer discounts to retail investors to encourage participation.

SEBI is aiming to make NCDs more competitive against other investment products by extending this logic to the primary bond market. It is also looking to "enhance competitiveness and attract new classes of investors." Crucially, these incentives would be limited only to the original allottees. Meaning, that they would not be transferable to secondary market buyers. This can make sure that the benefit goes directly to the investors SEBI is intending to attract.

Is SEBI Also Easing The Burden For Issuers?

This is the equation’s "supply-side." SEBI's paper has acknowledged that attracting retail investors is only half the battle. Further, the companies need to be willing to issue public debt in the first place. High compliance costs and stringent corporate governance norms have been cited as major deterrents for many companies. Therefore, SEBI has proposed a significant EODB (Ease of Doing Business) reform to address this, by redefining HVDLEs (High-Value Debt Listed Entities).

• The Current Rule - Currently, any entity with listed NCDs outstanding of ₹1,000 crore or more is classified as an HVDLE. These entities must adhere to a strict set of corporate governance norms, very similar to those for equity-listed companies.

• The Proposed Rule - SEBI has proposed to increase this threshold five-fold to ₹5,000 crore.

This one change might lead to a massive impact. SEBI's own analysis says that this could reduce the number of companies classified as HVDLEs from 137 to just 48. This can be a 64% decline in the number of firms facing the highest compliance burden. Therefore, this strategy is designed to encourage more entities to tap the bond market, avoiding the disproportionately high compliance costs deterrence.

Furthermore, SEBI has proposed other relaxations, such as removing the requirement to fill an independent director's vacancy within three months. This would apply if the company is still meeting the minimum requirement. It has also planned to remove the rule for disclosing material related-party transactions in quarterly reports, as this is already covered in half-yearly disclosures, thus cutting down on redundant reporting.

What's The Market's Take On This Dual Strategy?

This is a clear and comprehensive attempt by the regulator to fix a market that is currently underperforming. SEBI is trying to create a far more vibrant and accessible public debt market by measures such as:

• Sweetening the deal for retail investors (the demand side)
• Simultaneously cutting red tape for corporate issuers (the supply side)

The move to incentivise retail investors, in particular, is aligning NCDs with other popular savings instruments. This could be a powerful psychological nudge for investors comparing a plain-vanilla NCD to a senior citizen's fixed deposit.

This plan is also being proposed against a favourable macroeconomic backdrop. A recent CRISIL report noted that benchmark 10-year government bond yields are expected to edge lower, driven by benign inflation and falling oil prices. An environment of falling yields (meaning rising bond prices) is already attractive for bond investors. Adding a direct incentive on top of that could be the catalyst needed to reignite strong retail interest.

The market will now be watching closely for the public feedback, due by Nov 17, 2025 to see if any of these proposals are diluted. However, the intent is clear: SEBI is determined to reverse the decline and build a deeper, more inclusive corporate bond market.

Source

Fortune India
Reuters
Livemint
The Hans India
Economic Times
Financial Express
TOI