There is always a clamor to usher in a vibrant debt market in India, as on the lines of equity markets. Though the efforts to develop the secondary debt market—through the introduction of regulatory measures and innovative products—were in vogue through the last decade, India could not make much headway in deepening the debt market. But the current slowdown has given an opportunity for Indian regulators to again focus on the debt markets, say analysts. Plunging equity markets during the last few months have led many institutional investors to turn their attention to the debt market, particularly to the government securities markets. FIIs are also seen showing more interest in the Indian debt markets. In tune with the changing mood, RBI, in the Monetary and Credit Policy, 2009, has issued norms for bond houses, so that they would be able to repackage government securities by splitting the principal and interest components in a security into separate tradable instruments.

Separate Trading of Registered Interest and Principal of Securities or STRIPS allow trading of each coupon payment of a standard coupon-bearing bond and its principal as separate zero-coupon securities in the debt market. They are supposed to be advantageous because they pave way for the creation of a number of zero-coupon bonds, which are highly popular among both retail and institutional investors. According to RBI's draft guidelines, the zero-coupon bonds created through the application of STRIPS will be treated as government securities in all respects. Markets had been expecting these instruments to hit the market as early as 2002. However, their foray into the Indian markets got delayed in view of the low activity in the Indian debt markets. With the global financial crisis affecting the bottom lines of banks, insurance companies and other institutional investors, RBI has come up with norms for these instruments providing ample scope for them to gain from the government debt market. Following RBI's norms, bond yields softened on the back of high liquidity and non-banking institutions' perceiving government securities as safe haven investments.

The Analyst Magazine, Reserve Bank of India, RBI, Global Financial Crisis, Separate Trading of Registered Instruments and Principal Securities, STRIPS, Structural Reforms, Provident Fund, Mutual Funds, Foreign Institutional Investors, FIIs, Indian Debt Market, Statutory Liquidity Ratio, SLR.