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Bonds over bank credit? corporate bond market dominated by private placements

While bank loan growth has improved to 14% y-o-y in Q2FY19, from 7% in Q2FY18, going ahead, it could slow down to less than 10% as mutual funds (MFs) find it hard to finance housing finance companies and NBFCs

banks, bonds
Illustration: Shyam Kumar Prasad
banks, bonds
Illustration: Shyam Kumar Prasad

While bank loan growth has improved to 14% y-o-y in Q2FY19, from 7% in Q2FY18, going ahead, it could slow down to less than 10% as mutual funds (MFs) find it hard to finance housing finance companies and NBFCs. The corporate bond market is dominated by private placements. As of August, the financial sector accounted for over 70% of the issuance of corporate bonds. A positive feature of the corporate bond market has been the increase in the volume of trading in the secondary market. The trading volume in the H1FY19, according to a report by Care Ratings, is comparable to that of last year. The commercial paper (CP) market has been very buoyant in the H1FY19 with issuances peaking at Rs 12.46 lakh crore. The preference for CP over bank credit will depend primarily on the interest rate differential between the two. In a rising rate regime, the CP market reacts quicker and becomes less attractive in relative terms. MFs’ assets-under-management increased from Rs 21.36 lakh crore in March 2018 to Rs 22.04 lakh crore in September 2018, a growth of 3.2%. So far in FY19, the amount of funds in income and debt instruments have declined slightly while that in equity has gone up.

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