Moreover, banks’ ability to withstand stress is critical, especially in the context of the recent increase in banks’ non-performing assets on account of their exposure to the infrastructure sector. Bond markets also aids financial stability by spreading credit risks across the economy and thereby shielding the banking sectors in times of stress.
Further, a well-developed bond market can also help banks raise funds to strengthen their balance-sheets. Viewed in the above context, a vibrant debt market is critical to meet the funding requirement for infrastructure sector. Hence, going forward, there is a need to increase the reliance on the corporate bond financing so as to reduce macro-economic vulnerability to shocks and mitigate systemic risks.