Bankruptcy code boosting corporate bonds: CRISIL

The Dollar Business Bureau

The various initiatives of Indian government and the newly introduced Insolvency and Bankruptcy Code, 2016 are boosting the country’s corporate bond market, said CRISIL in a report.

According to it, lesser profitability of public sector banks (PSBs) has reduced their capability in accruing capital. Weak performance, particularly due to the rise in non-performing assets (NPAs), has created a challenging environment for the PSBs in raising money from the capital market.

Higher provisioning is another factor that has weakened the ability of PSBs in offering better interest rates. Along with the rise in credit demand, capital requirement would also increase. There are also several other imperatives of growth, the report states.

India will require Rs.43 lakh crore (approximately $650 billion) for infrastructure needs in the coming five financial years. The PSBs have to raise another Rs 1.7 lakh crore (roughly $25 billion) tier I capital by the end of FY 2019, to follow the Basel III regulations, CRISIL said.

Ashu Suyash, MD and CEO of CRISIL said that the corporate bond market is very crucial for the growth of the country. India should take more measures to attract global investors as well as the issuers. Policy impetus is necessary for issuers to tap the corporate bond markets. Another major step is to create an innovative credit-enhancement mechanism. Bond guarantee fund is one such mechanism that can draw a huge number of issuers and investors.

Pawan Agrawal, Chief Analytical Officer of CRISIL said that it is necessary to have innovative structures and vehicles to structurally de-risk the growth-finance.  India needs new issuers in sectors other than finance. This implies directing the big companies to raise some of their funding needs through commercial paper and bonds. 

CRISIL also recommends allowing repos in corporate bonds to attract more foreign investors into the market. This helps mutual funds in managing their redemptions in a better way. TReDS, REITs, and InvITs are some of the innovations which are almost ready to begin in real time. The Bond Guarantee Fund of India has also proposed to begin very soon in the country, CRISIL said.