Sebi mulls incentivising retail investors with in consultation paper to increase retail participation in India’s bond market

The Securities and Exchange Board of India (Sebi) has proposed amendments to its regulations that would allow issuers of non-convertible debt securities (NCDs) to offer targeted incentives to specific categories of investors, according to a consultation paper.

The proposal has sought an amendment to the Sebi (Issue and Listing of Non-Convertible Securities) Regulations, 2021, to permit issuers of NCDs the option to offer either a higher coupon rate or issue-price discount to specific retail subscribers, including senior citizens, women, and armed force personnel (serving, ex-servicemen, and widows of ex-servicemen).

India’s capital markets regulator said the move is designed to give a fillip to retail participation in public debt offerings and to reinvigorate India’s primary debt market, which has witnessed a sharp decline in issuances over the past year. “The amount of public debt issues has reduced from ₹19,168 crore in FY24 to ₹8,149 crore in FY25,” the consultation paper noted, citing data from Sebi’s Annual Report 2024–25.

Sebi also said that it has received feedback from market participants, highlighting the need to make debt instruments more attractive to small investors. “Allowing issuers to offer such incentives could align with similar practices in the banking and non-financial sectors,” the consultation paper was quoted as saying.

Drawing parallels with banks and non-banking financial companies—which routinely offer higher interest rates on fixed deposits to senior citizens and women depositors, and members of the armed forces receiving financial perks such as travel discounts—offers like these in the debt market could “enhance competitiveness and attract new classes of investors,” particularly at a time when India’s corporate bond market remains skewed towards institutional buyers.

In the consultation paper, Sebi has proposed that such incentives would be entirely discretionary and offered only to the original allottees, not to secondary market buyers. The details of any such offering—such as the eligible investor categories and quantum of incentives—would need to be disclosed upfront in the offer document.

A draft amendment to Regulation 31 of the NCS Regulations has been proposed, introducing a proviso that explicitly allows issuers to offer incentives “to certain categories of allottees,” subject to Sebi’s approval from time to time.

Sebi has also pointed out similar precedents, which already exist in the equity market. Under Sebi’s Offer for Sale (OFS) framework, promoters can offer discounts to retail investors. By extending the same framework to the bond market, Sebi argues that it can bridge the gap between institutional and retail investors and make bond markets a more rewarding investment instrument.

The capital markets watchdog has invited comments on the proposal from all stakeholders by November 17. The regulator has asked the public to specifically weigh in on whether it would be appropriate for issuers to offer such incentives only to initial allottees and which investor categories should be included under the scheme.