The market regulator also gave debt issuers the freedom to tap the market with one credit rating, instead of the existing requirement of mandatory rating by two different credit rating agencies, to reduce costs.

Sebi said the liberalised rules, which have come into place with immediate effect, were aimed at facilitating the development of a vibrant primary market for corporate bonds in India.

The capital markets regulator also removed the structural restrictions currently placed on debt instruments such as those on maturity and put-call option on conversion to afford issuers with the "desired flexibility in structuring of instruments to suit their requirements".

According to the Sebi data, the trading volumes of corporate bonds totalled in excess of Rs 80,000 crore (Rs 800 billion) this calendar year, which is very modest compared with the turnover in the stock markets.

On NSE alone, the daily trading volume in the  cash and derivatives segments (Rs 85,000 crore on an average) beats the corporate bonds trading turnover for the January-November period.

The daily trading  turnover on the BSE cash segment is Rs 10,000 crore (Rs 100 billion) and another Rs 1,000-odd crore (Rs 10 billion) for derivatives.

The NSE break-up is Rs 25,000 crore (Rs 250 billion) for cash and Rs 55,000 crore (Rs 550 billion) for derivatives.

The mandatory rating requirement by two credit rating agencies on debt issues owe its origin to the C R Bhansali scam of the mid-1990s, which saw his finance company  going belly-up after a huge run on deposits by investors.

The  deposit schemes had ratings by one agency and following the scam, Sebi (under the then chairman D R Mehta) made ratings by two credit agencies mandatory.

Generally, below-investment-grade issues command higher interest rates and are preferred by investors, who have the risk appetite for such issues, he said.

Sebi also allowed below-investment-grade debt instruments to tap the market through public or rights issue, saying in a transparent regime, investors should have a choice to decide whether to invest in a non-investment-grade debt instrument.

The steps by the capital markets regulator is the latest in a series of measures taken this year to pump life into the corporate bond market.

Early this year, Sebi allowed the country's two exchanges - the Bombay Stock Exchange (in January) and the National Stock Exchange (in March) - to launch reporting platforms for corporate bonds to put the debt market activity in the public domain.

Greater Freedom

Sebi gave debt issuers freedom to tap the market with one credit rating

Market regulator also removed the structural restrictions currently placed on debt instruments

The Sebi steps are the latest in a series of measures taken this year to pump life into the corporate bond market