Supply of corporate bonds can double up to ₹70-lakh crore by FY25

The supply of corporate bonds in the domestic market can double to about ₹65-70-lakh crore (outstanding) by March 2025, with the financial sector contributing about 50 per cent of the incremental supply, followed by innovation (about 25 per cent) and infrastructure (about 20 per cent), according to Crisil.

Of the aforementioned supply, non-banking finance companies/ housing finance companies will mobilise ₹14-15-lakh crore, followed by innovations (which has potential to mobilise additional ₹7-10-lakh crore via issuances from the infrastructure sector), infrastructure (₹5.5-7.5-lakh crore), corporates (₹2.5-3.0-lakh crore), and banks (₹1.5-2.5-lakh crore).

The potential supply of corporate bonds (outstanding) can increase from 16 per cent of GDP in FY20 to 22-24 per cent of GDP by FY25, according to a presentation by the credit rating agency.

However, demand is expected to be at ₹60-65-lakh crore, despite regulatory push. This means foreign capital will be necessary to bridge the ₹5-lakh crore gap.

The agency assessed that retirement funds will contribute to about 25 per cent of the incremental demand, followed by insurance, mutual funds and regulatory push contributing about 20 per cent each.

Infra build-out via bonds

Referring to the National Infrastructure Pipeline envisaging ₹111-lakh crore of investments between fiscals 2020 and 2025 for India’s infrastructure build-out, Crisil observed that raising such humongous amounts – an onerous ask even in normal times – has become even more difficult because of the fiscal stress caused by the Covid-19 pandemic.

Given this, Indian capital market will have a big role to play in financing the great build-out through bonds, it added.

For the bond market to fill the supply-demand gap, Crsisil said supply-side innovations, such as pooling of assets, a well-capitalised Credit Guarantee Enhancement Corporation, and widespread adoption of the INFRA Expected Loss (EL) rating scale will be pivotal.

On the demand side, the agency felt that credit default swaps, retail participation, index linked funds, and mechanisms to improve liquidity will be enablers.

Besides these, attracting foreign capital is crucial to bridging the emerging supply-demand gap, especially given the crowding-out by gilts stemming from the huge borrowing programme of the government.

Ashu Suyash, MD and CEO, Crisil, said: “Pooled assets bring scale, diversification benefits and flexibility to structure the cash flows. This can attract foreign capital and improve the confidence of bond market investors.”

She observed that take-out financing facilitated by pooling of assets can help banks and other infrastructure financiers free up a portion of the over ₹20-lakh crore credit outstanding in the sector for fresh lending to new projects.

Suyash said InvITs, co-obligor structures, covered bonds and securitisation are facilitative mechanisms for pooling assets.

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