Corporate bond issuances to rise marginally to Rs 8 trillion FY21: ICRA

Fresh corporate bond issuances will cross Rs 8 lakh crore in FY21 as against Rs 6.55 lakh crore last fiscal, a report said on Monday.

With estimated redemption of Rs 4.95 lakh crore in FY21, the volume of corporate bonds outstanding will rise by over 9 per cent to Rs 35.5-35.8 lakh crore, domestic ratings agency Icra said.

It can be noted that promoting the corporate bond market is one of the stated objectives of policymakers and they have been repeatedly stressing on the same, saying the reliance on the banking system needs to be reduced.

The rating agency said corporate bond issuances remained strong in the September quarter at Rs 2.2 lakh crore as against Rs 2.3 lakh crore in the first quarter.

"Given the regulatory stance of maintaining accommodative stance of monetary policy and surplus liquidity environment, the issuances could remain strong and spreads are likely to remain narrow over the next few quarters," its head for financial sector ratings Anil Guota said.

It said the spreads on corporate bonds over government securities (G-Secs) of similar tenure has declined to pre-Covid levels by the end of September, attributing the same to improved investor appetite coupled with regulatory measures.

With the spreads now below the daily average for the last five years, the scope of further decline, if any, remains limited, it said.

The yield on 10-year G-Secs has been below 6 per cent and reverse repo at 3.35 per cent, the yields on corporate bonds have also declined across various rating categories and tenure during the last six months, it explained.

Despite the decline in yields on corporate bonds, these remain attractive in relation to other alternatives and this has also resulted in improved demand from investors thereby helping in reducing spreads.

"With improved investor appetite and vibrancy in the debt capital market, the certainty on availability of funding at competitive rates has improved," Gupta said.