More than a year after its introduction, a unique facility enabling investors to exit corporate bonds has seen minimal adoption, as issuers have largely avoided offering it due to low incentives, strict conditions, and potential balance sheet uncertainties. A senior regulator official noted that usage of this liquidity window has been negligible, with no public data available.
Implemented on 1 November 2024, the mechanism was intended to tackle India’s longstanding low liquidity in the corporate bond market, which discourages broader participation, especially from retail investors. Under the framework, issuers can provide a “liquidity window” via put options, allowing investors to sell bonds back on pre-specified dates. Issuers must obtain board approval, ensure committee oversight, and maintain fair treatment of eligible investors. The window can operate monthly or quarterly for three working days, with settlements completed on a T+4 basis and payments credited within one day of closure.
Despite regulatory efforts, including incentives for specific investors and platforms to boost trading, structural frictions, complex disclosure requirements, and removal of indexation benefits for long-term debt funds have limited participation, keeping market activity subdued.
