BANGKOK, July 15: Corporate bond issues in India, which now total US $ 1.83 billion, are expected to double in the next five years as the country's bond market further develops.

RH Patil, managing director of the National Stock Exchange (NSE), told Reuters that companies were increasingly finding it cheaper to raise money from the capital market than through direct borrowing from banks.

Corporate bonds currently account for only one per cent of the $92 billion bond market which is dominated by government bonds. The market capitalisation of the central and state government bonds and T-bills stood at around $ 65.35 billion as of May 31 this year.

``In the past, corporates preferred to borrow from institutions. But now that the bond market is more developed and the corporates are getting stronger, going to the capital market and letting the market decide your cost of funds is becoming more attractive,'' he said.

The bond market in India, like many other emerging bond markets in Asia, is expected to be driven by high demand for funds to finance expanding infrastructure.

``The size of the Indian bond market is likely to more than double by the year 2000,'' Patil said. He said the lower interest rate outlook would benefit the bond market. According to Patil, an increase in liquidity, mostly from foreign inflows, was likely to bring down the interest rates by a further 100-150 basis points by the year end. ``With the interest rate easing, foreign debt funds have poured in,'' he said.

Rules regarding foreign investors' participation in the bond market were being relaxed, he added.

Patil said the eurobond market was still a major attraction for Indian corporates due to its flexibility. But he said tough regulations, especially on disclosures relating to the Yankee bond market, would continue to alienate Indian investors for some time.

``On the top of that, you need to raise a big amount of money if you want to issue the Yankee bond...That's one of the constraints,'' he said. ``As of today, I don't see Yankee bonds as a viable vehicle to raise funds,'' he opined.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.