OBPPs Seek Insurance Fund for Retail Bond Investors

Online Bond Platform Providers (OBPPs) proposed an investor protection fund for retail bond markets. The structure mirrors deposit insurance for bank accounts. Premiums would range from 0.20 to 0.30 percent based on credit risk. This fund aims to increase confidence among small investors. It seeks to deepen participation in corporate bond issuance.

Premium Structure and Universal Application

Industry participants suggested a universal premium across all bond issuers. The cost is linked directly to the credit risk of the issuer. Harish Reddy, co-founder of Stable Money, advocated for this model. He noted that low default rates support such a low premium. Mandatory participation is preferred over voluntary schemes. Voluntary systems create adverse selection risks. This mechanism could reduce the cost of capital for issuers.

Recent Default Incidents Highlight Need

Nikhil Aggarwal, group CEO of Grip Invest, cited a specific default case. A non-banking financial company defaulted on bonds worth 150 crore rupees. The default followed a rating downgrade and liquidity stress. Thousands of retail investors were affected by the event. The company repaid principal, interest, and penalties within four months. Underlying loan assets continued to perform during the repayment period. This incident underscores the fragility of retail exposure without protection.

Regulatory Support and Liquidity Dynamics

The Securities and Exchange Board of India supports deeper retail access. The regulator proposed a color-coded Credit Risk-o-Meter. This tool helps investors assess credit risk and yield trade-offs. OBPPs must act as gatekeepers for risk understanding. Ajinkya Kulkarni, co-founder of Wint Wealth, stated that retail volume solves liquidity issues. A large investor base improves secondary market activity. Institutional buyers can provide additional demand for exiting retail investors. However, platform willingness to hold stressed bonds remains a challenge.