Hong Kong, Apr 23: India's corporate bond market remains underdeveloped despite a fast growing economy and a rapidly transforming financial sector, the Asian Development Bank said in a report released on Wednesday.

India continues to attract capital even in the face of global market turbulence, the report said, as Asia's third-biggest economy averaged growth of about 8.5 percent in the last four years and its stock market attained world-class standards.

But the development of a "true credit culture" remains hindered as corporate borrowers continue to depend on bank finance and stock markets for funding, the ADB said in its April issue of the Asia Bond Monitor.

Since 1996, India's stock market capitalisation as a percentage of gross domestic product (GDP) has risen to 108 percent from 32.1 percent, while the banking sector's ratio to GDP jumped to 78.2 percent from 46.3 percent.

In contrast, bond markets grew to a modest 43.4 percent of GDP from 21.3 percent. India's government bond market, at 38.3 percent of GDP, stands ahead of most emerging East Asian markets, with the need to finance a large fiscal deficit stimulating issuance activity. Corporate bonds, however, accounted for only 3.2 percent of GDP.

The ADB includes the ASEAN countries plus China, Hong Kong and South Korea in emerging East Asia.

ASEAN groups Singapore, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand and Vietnam.

In absolute terms, the total outstanding volume of government bonds in India stood at USD 364 billion, behind only China and South Korea.

But with the dominance of the private placement market in India, its corporate bond market development lagged most emerging East Asian countries.

Fragmented regulatory jurisdictions and a common perception that various authorities are working at cross-purposes hinder the growth of India's bond market, the ADB said.

"A rationalised and consolidated regulatory and supervisory structure of India's local-currency bond market could contribute to substantial efficiencies spurring innovation, economies of scale, liquidity, and competition," it said.

Trading liquidity is limited by laws such as mandatory requirements for banks, insurance companies and pension funds to hold 25 percent of their time deposit liabilities in government securities, it said.

While the growth of the mutual fund industry has contributed to additional trading activity, much of the benefit has been restricted to short-term bonds and bills as corporations use these funds for treasury management.

A streamlined regulatory structure and unified regulatory body would also ensure a level playing field for everyone, the ADB said.

Reform of the stamp duty and disclosure laws for public offers would also help to develop the corporate bond markets, it said.