India's bond slump worse than others, issuance value down 10.1%

Global issuances have crossed levels seen before the pandemic

Indian issuers are borrowing less money through bonds compared to their global peers.

The total value of bond issuances was down 10.1 per cent on a rolling 4-quarter basis in March 2022, compared to a similar period in March 2019, shows an analysis of data from tracker Refinitiv, a London Stock Exchange Group (LSEG) business. The four quarters ending March 2019 marked  the last full financial year before the pandemic took hold. Global bond issuances are up 39.3 per cent in comparison. Emerging market issuances are up 42.8 per cent (see chart 1).

A further analysis of issuer data shows that much of the slump has come because of lower bond issuances by the financial sector. Financial segment issuances are down 33.3 per cent in the period under consideration. Non-financial issuances have more than doubled (up 106.6 per cent) in the same period. The financial sector accounts for the bulk of bond issuances.  It accounted for over 80 per cent of issuances for the four quarters ending March 2019.

Financials tend to dominate the bond market in India according to a note on the Indian corporate bond market published in the Reserve Bank of India (RBI) bulletin dated January 2019.  This goes hand-in-hand with a financial system where banks dominate. This has been prevalent in many emerging markets, especially in Asia, according to the note by Shromona Ganguly, research officer, division of financial markets in the RBI’s department of economic and policy research. India's corporate bond market remains relatively less developed, added the note.  

“Both the primary and the secondary segments of the market continue to be dominated by issuance of bonds by infrastructure and financial services companies while the share of manufacturing firms is negligible. The placement of corporate debt remains largely private, accounting for as high as 98 per cent of the total amount raised, on an average,” it said.

A regulatory note entitled ‘Report of the Working Group on Development of Corporate Bond Market in India’ issued in August 2016 noted the reliance on bank funding, and the need for developing corporate bond markets.

“There are inherent structural incentives for borrowers to prefer bank financing, e.g., cash credit system and no disincentive for enjoying unutilised working capital limits….going forward the corporates have to reduce their reliance on bank lending and move, accordingly, to market mechanism for accessing resources,” it said.

Adjusted non-food bank credit, a metric for how much money banks are lending, accounted for 52.3 per cent of the total flow of resources to the commercial sector in 2018-19. In other words, over half of the total money that India’s commercial sector put to use before the pandemic, came from banks.

A look at money raised by the financial versus the non-financial segment shows a sharper (though still nascent) recovery for non-financial issuers in the bond market (see chart 2).

Analysts believe that companies will only raise more debt as they feel the need for increased capital expenditure, which in turn depends on an improvement in demand as the economy recovers.