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India’s corporate bond market is likely to see a significant deepening, with the overall supply estimated to more than double to close at ₹60-lakh crore by the end of fiscal 2023. However, investor demand could fall short by as much as ₹4-lakh crore, according to a new report by rating agency Crisil.
The overall supply of corporate bonds is estimate to more than double to ₹55-lakh crore to ₹60-lakh crore by the end of fiscal 2023, from the current ₹27.4-lakh crore, according to the Crisil Yearbook on Indian Debt Market 2018, which was released on Wednesday.
In contrast, the overall demand is expected to be over ₹53-lakh crore, led by retirement funds, insurance companies, mutual funds, foreign portfolio investors and others, and banks.
“All that growth will raise the corporate bond market’s footprint to as much as 20 per cent of GDP over the next five fiscals from 16 per cent now,” the report said, adding that this would be much below the levels seen in developed countries and some Asian peers.
Measures needed
Noting that the corporate bond market will play a role as a funding space for rapid economic development in the long term, Crisil also called for a slew of measures to bridge this gap.
“While stabilisation of the process and quicker resolutions under the Insolvency and Bankruptcy Code would increase investor confidence, any measure to improve market liquidity will provide a significant leg up,” said Ashu Suyash, Managing Director and CEO, Crisil.
It has also recommended deepening the market for ‘A’ rating category bonds, as it will allow a large number of companies to tap the corporate bond market at lower interest rates compared with bank loans. “Crisil’s analysis shows there are nearly 2,400 companies rated in that category, with aggregate long-term bank facilities of about ₹10-lakh crore,” it said.
According to the rating agency, measures could also include fast-tracking legislative changes to kickstart the market for credit default swaps; enabling banks and primary dealers to raise funds from the RBI’s liquidity adjustment facility window through repo of corporate bonds; and expediting the tripartite repo market to improve liquidity in corporate bonds.
It has also recommended fast-tracking the setting up of the Bond Guarantee Fund of India and pushing partial credit enhancement products of banks to enable innovative, credit-enhanced bonds that will help the infrastructure sector access long-term funds from insurance and pension funds.
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