Bonds are issued by borrowers to raise funds for long-term investments; the main issuers of bonds in India are as under:

Central Government

Central government continuously borrows through the RBI to meet its budgetary shortfalls. It has a continuous time table for borrowings and the entire agenda for the 6 months is laid out by the RBI in advance. At the short end, the central government borrows through the 91-day treasury bills, 182-day treasury bills and the 364 day treasury bills. At the long end, the government borrows for 10 year and 15 year maturities.

The key difference between treasury bills and the government securities is that treasury bonds are sold at a discount and redeemed at par. There is no intermediate payment of interest on treasury bills but the premium to discounted value is the return on the T-Bill. On the other hand, the government securities pay regular coupon payments and redeemed on maturity. Government securities also have a robust secondary market where they can be bought and sold aggressively by large institutions.

State Governments

State governments need funds for state level infrastructure, major irrigation projects, and loan waivers for farmers etc. To meet their revenue shortfalls, the state government also relies on borrowing money at regular intervals from the open market. While central government securities are fully default free, the state government securities are not entirely default free and there have been cases where state governments across the world have defaulted on their payment commitments.


A municipal bond is issued by local governments or the municipal corporate of a city or town to raise funds for town welfare. In the US, the municipal bond market is very large although in India the market is still quite small by global standards. These municipal bond are more risky that their state bonds and central government bonds.

Municipal bonds offer an extremely favourable tax treatment to investors in certain countries. For example, incomes from such municipal bonds are not taxed by central, state or local governments as long as the bond holder lives in the municipality in which the bonds were issued. As a result, municipal bonds can be issued with very low yields. Also, in many cases, these municipal bonds come with an inherent guarantee from the state or the central government adding more value to such bonds.

Financial institutions

These include financial institutions like Railway Finance Corporation, Power Finance Corporation, IREDA etc which need funds and a huge capital base to be able to raise funds and lend these funds onward.

Banks and NBFCs

Banks and NBFCs are in the spread business where they need to issue bonds to raise funds at low rates and then use these funds to lend to industry, SME, housing companies etc. They are among the largest borrowers in the bond market.

Manufacturing Companies

Manufacturing companies can also raise funds by issuing debt in the form of corporate bonds. These bonds offer a higher promised coupon rate than Treasuries, but expose investors to default risk. Ratings agencies, such as CRISIL, ICRA, CARE and Fitch, rank corporate issuers according to their likelihood of default. The riskiest corporations offer the highest coupon rates to investors as compensation for default risk. There is an inverse relationship between the coupon on the bond and the credit rating quality. That means companies with a high credit rating can manage to pay a lower coupon while companies with a lower rating need to pay higher coupon rates.