Firms depend on bank loans as bond market access limited: SBI chairman Arundhati Bhattacharya

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Mumbai | Published: September 10, 2016 6:08:05 AM

The problem that remains is the fact that the bond market is only open to higher-rated firms, SBI chairman Arundhati Bhattacharya said

The reason most corporates tend to depend on bank loans instead of tapping the bond market is because the market is only accessible to higher-rated corporates, State Bank of India chairman Arundhati Bhattacharya said on Friday. (Reuters)The reason most corporates tend to depend on bank loans instead of tapping the bond market is because the market is only accessible to higher-rated corporates, State Bank of India chairman Arundhati Bhattacharya said on Friday. (Reuters)

The reason most corporates tend to depend on bank loans instead of tapping the bond market is because the market is only accessible to higher-rated corporates, State Bank of India chairman Arundhati Bhattacharya said on Friday.

At present, the corporate bond market accounts for around 31% of total credit to corporates.

“The only problem that remains is the fact that this market is only open to higher-rated corporate. It is not yet accessible to people with lower ratings,” she said, replying to a question on the recent guidelines issued by the Reserve Bank of India (RBI) to develop the corporate bond market.

According to Bhattacharya, it is also is a reflection of the fact that long-term players such as insurance companies and pension funds in India can be in the bond market only for higher-rated papers. “Therefore they are not at liberty to put more money into those lower-rated papers, but they may be giving higher coupon.” However, she is hopeful that over a period of time, as people understand the risk and as the pace of resolution of stressed assets quickens, people will get more confidence of putting money into lower-rated credit.

The central bank recently announced a slew of measures to deepen the corporate bond market.

Measures include increase in participation by overseas investors in corporate bonds. It also allowed the banks to issue long-term masala bonds to shore up their capital requirements.

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