There is an urgent need to deepen the corporate bond market to meet the economy's rising fund requirements as infrastructure sector alone requires about Rs 43 trillion over next five years, according to credit rating agency Crisil.
There is an urgent need to deepen the corporate bond market to meet the economy’s rising fund requirements as infrastructure sector alone requires about Rs 43 trillion over next five years, according to credit rating agency Crisil.
It added state-run banks need Rs 1.7 trillion crore to meet Basel-III norms over the next two years.
Deepening the corporate bond market is crucial for oiling a fast-growing economy, Crisil said and expressed optimism that the new bankruptcy code can go a long way in strengthening this segment.
It added that the corporate bond market, which currently provides one-fifth of the outstanding funding to the corporate sector, could deepen with the help of a raft of recent developments such as a conducive macroeconomic milieu, elevated stress at public sector banks, imperatives of financing large infrastructure projects, favourable regulations and ongoing innovations in bond structures.
“A sharp fall in profitability has diminished the ability of public sector banks to generate capital from internal accruals, while weak operational performance, driven by a surfeit of non-performing assets, has made it difficult for them to raise money from capital market.
“Additionally, higher provisioning has weakened their ability to offer competitive interest rates, and if credit demand grows faster, their capital needs will be even higher,” Crisil Rating’s Chief Analytical Officer Pawan Agrawal said.
He also noted that the country would need Rs 43 trillion for infrastructure sector by 2020, while public sector banks would need to raise Rs 1.7 trillion by March 2019 to conform to Basel-III norms.
This makes corporate bond market crucial for the economy and further steps, including policy impetus, offering protection through innovative credit enhancement mechanisms such as bond guarantee fund, would be required to draw more issuers and investors, he added.
Crisil also said the new Bankruptcy Code can strengthen creditors’ rights and can lead to deepening of bond markets.
“Countries with strong bankruptcy resolution mechanisms have better recoveries,” Agrawal said, adding “predictable recovery process enhances confidence of the bond market investors.”