RBI strengthens rate markets through structural reforms: Ind-Ra
29/08/2016 14:20
The Reserve Bank of India’s (RBI’s) measures for the development of the fixed income and currency markets is a step in the right direction and can help broaden the market over the medium- to long-term, says India Ratings & Research (Ind-Ra).
Ind-Ra opined that these initiatives along with the successful implementation of the bankruptcy laws can help broaden the markets, assuming some of the other issues relating to reissuances, stamp duty and asymmetry of information are addressed in the interim.
The agency expects higher rated corporates to directly benefit in the short-term; however the investment guidelines for most investor classes will require changes, to move down the credit curve. Ind-Ra believes that financial institutions will remain the primary source of funding for corporates, particularly stressed corporates. Ind-Ra estimates that the number of borrowers above the threshold of Rs 100 billion debt obligation aggregates 50 - out of which potentially 24 are either stressed or fairly vulnerable.
RBI’s measures include, allowing lenders to issue masala bonds, to accept corporate bonds under the liquidity adjustment facility, higher ceiling on credit enhancements and providing Foreign Portfolio investors (FPIs) direct access to bond trading platforms.
The measures are likely to give a flip to the lower rated category bonds in the long run since unlike in the developed markets, the Indian corporate bond market is characterised by issuances from higher rated corporates both in terms of public and private placements. While in the developed bond markets, the appetite for speculative/non-investment grade bonds remains high and they are issued and traded widely. In the Indian bond market however it is not as easy to place a bond below ‘AA category’.
The increase in the aggregate partial credit enhancement ceiling to 50 per cent from the earlier 20 per cent will help corporates to raise money through bonds, it said.
With the change in the issuance guidelines for masala bonds – allowing banks to raise funds overseas as AT1 and T2 capital, India banks can take advantage of the negative sovereign yield (of most sovereigns) and use this opportunity to tap the international markets. Ind-Ra estimates that ‘Banks need to raise INR710bn through AT1 Bond in FY17-18, assuming credit growth of 8-9 per cent.
Ind-Ra believes, giving direct access to FPI in the trading platform will add more vigor, especially in the shorter end of the curve. However, it will also mean faster transmission of shocks.
29/08/2016 14:20
Ind-Ra opined that these initiatives along with the successful implementation of the bankruptcy laws can help broaden the markets, assuming some of the other issues relating to reissuances, stamp duty and asymmetry of information are addressed in the interim.
The agency expects higher rated corporates to directly benefit in the short-term; however the investment guidelines for most investor classes will require changes, to move down the credit curve. Ind-Ra believes that financial institutions will remain the primary source of funding for corporates, particularly stressed corporates. Ind-Ra estimates that the number of borrowers above the threshold of Rs 100 billion debt obligation aggregates 50 - out of which potentially 24 are either stressed or fairly vulnerable.
RBI’s measures include, allowing lenders to issue masala bonds, to accept corporate bonds under the liquidity adjustment facility, higher ceiling on credit enhancements and providing Foreign Portfolio investors (FPIs) direct access to bond trading platforms.
The measures are likely to give a flip to the lower rated category bonds in the long run since unlike in the developed markets, the Indian corporate bond market is characterised by issuances from higher rated corporates both in terms of public and private placements. While in the developed bond markets, the appetite for speculative/non-investment grade bonds remains high and they are issued and traded widely. In the Indian bond market however it is not as easy to place a bond below ‘AA category’.
The increase in the aggregate partial credit enhancement ceiling to 50 per cent from the earlier 20 per cent will help corporates to raise money through bonds, it said.
With the change in the issuance guidelines for masala bonds – allowing banks to raise funds overseas as AT1 and T2 capital, India banks can take advantage of the negative sovereign yield (of most sovereigns) and use this opportunity to tap the international markets. Ind-Ra estimates that ‘Banks need to raise INR710bn through AT1 Bond in FY17-18, assuming credit growth of 8-9 per cent.
Ind-Ra believes, giving direct access to FPI in the trading platform will add more vigor, especially in the shorter end of the curve. However, it will also mean faster transmission of shocks.
