Money & Banking

PSU debt raising through bonds gained, NBFCs faced challenge: Study

PTI New Delhi | Updated on September 08, 2019 Published on September 08, 2019

Representative image   -

The loss of fund-raising capability through corporate debt bonds by non-banking financial companies (NBFCs) resulted in the gain for public sector financial institutions. This increased their share in debt issues by 8 percentage points in 2018-19, said an Assocham-Crisil study.

Defaults by Infrastructure Leasing & Financial Services (IL&FS) at the beginning of September 2018 created panic and led to a dip in investor confidence towards lending to non-banking finance companies (NBFCs).

The debt market in India has seen notable growth over the years. However, the development has been skewed towards government securities, or G-secs, compared with corporate bonds. G-secs command a penetration ratio of nearly 30 per cent of the GDP.

Corporate bonds, in comparison, have a penetration ratio of 16 per cent, and are rather illiquid even in the secondary market, with a trading ratio of 0.22 per cent compared with 0.55 per cent for G-secs.

Issuances from the NBFC/HFC segment, in particular, have plunged in the aftermath of defaults by a few large players and the ensuing downgrades that eroded investor confidence and appetite, it said.

The study noted that investors tend to move towards the safety of the top-rated corporate bonds in the backdrop of certain events, affecting particularly the NBFC sector, it added.

The share lost by NBFCs/HFCs in overall issuances (of corporate bonds) was captured by PSU financial institutions, who grew their share by 8 percentage points, said the joint ASSOCHAM-CRISIL on ‘Deepening the debt market’ which has dwelt issues and imperatives of the Indian debt market.

It further said that the share of AAA-rated issuances increased 12 percentage points as investors moved towards safer investments amid the intensifying credit crisis.

For most of the borrowers, domestic bond issuance remains costly and cumbersome compared with bank lending.

Lack of retail participation despite a huge supply of government paper in the country is also one of the major impediments to the penetration of the bond market.

Corporates prefer raising funds through private placements but private placements lack transparency and access is not available to a large pool of investors, the study added.

“We believe increasing investor demand and developing facilitating infrastructure and regulatory environment will facilitate the growth of Indian corporate debt markets,” it said. Demand and profile of investors play an important role in shaping the market infrastructure.

In India, institutions are the key investors in the debt markets as there is limited appetite on the retail side given the complexity and ticket size of the product.

Published on September 08, 2019

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.