Companies and non-banking financial companies (NBFCs) together mopped up R70,395.56 crore from the bond markets in October, taking the total amount raised in the first seven months of FY17 to R3.81 lakh crore. Despite a year-on-year halving of funds raised through corporate bond issues in April, the following six months of the current financial year collectively saw corporates and NBFCs borrowing R3.40 lakh crore through the corporate bond market, 68% higher than the R2.02 lakh crore raised in the same period last fiscal year.
In FY16, borrowings from the corporate bond market had amounted to R4.58 lakh crore, compared with R4.04 lakh crore raised in FY15. It has been cheaper for companies to borrow via bonds for some time now, rather than tap banks for loans, as the yield on a AAA-rated one-year paper is about 190 basis points lower than the lowest marginal cost of funds-based lending rate in the market.
The outstanding amount on corporate bonds as on September 30 stood at R21.95 lakh crore, an increase of R3.28 lakh crore over September 30, 2015, data released by Sebi showed.
On the other hand, the Reserve Bank of India (RBI) data revealed that outstanding bank credit to industry as on the same date stood at R26.52 lakh crore, less than 1% higher than R26.29 lakh crore outstanding as on September 18 last year. Further, a 140-bps fall in bond yields since the beginning of February has made it even more attractive for corporates to turn to the corporate bond market for funds.
As a result, an AAA-rated corporate can now borrow one-year money at 7% levels, compared with 8.6%-8.7% levels pre-February. According to market participants, the average daily trading volumes in corporate bonds have shot up to anywhere between R10,000 crore and R15,000 crore, compared with just R500-1,000 crore three years back.
The fall in yields on corporate bonds has more or less been in line with the fall in yield on the 10-year benchmark gilt, which closed Friday at 6.43%, after having fallen to a seven-and-a-half-year low of 6.42% on Thursday. Since February 1, the yield on the benchmark gilt has fallen by 136 basis points.
While banks have moved from a base rate to the marginal cost of funds-based lending rate (MCLR), the shift hasn’t significantly helped bridge the gap between corporate bond yields and bank lending rates. State Bank of India’s base rate before the shift to MCLR was 9.30%, only 40 basis points higher than its current one-year MCLR, which is 8.90%.
However, despite the disparity in the cost of borrowing, experts maintain that only highly-rated corporates can tap the bond market.