Credit ratings and the pricing of risk in the Indian corporate bond market

This paper examines the pricing of credit risk in the Indian corporate bond market, where credit ratings are highly concentrated in the highest categories. Using a comprehensive dataset of bond issuances from 2010 to 2019, we document substantial variation in spreads within the AAA category. The results show that spreads are systematically related to ownership structure, rating agency, firm fundamentals, and reputation. Public sector affiliation and firm age reduce borrowing costs, while agency identity and group structure remain important determinants. The findings suggest that ratings are not sufficient statistics for credit risk and that investors rely on additional signals, particularly in periods of stress.