Budget 2025: NaBFID's partial credit guarantee to boost corporate bond mkt

Finance Minister Nirmala Sitharaman on Saturday said the National Bank for Financing Infrastructure and Development (NaBFID) will set up a partial credit enhancement facility for corporate bonds in the infrastructure sector.

 

According to NaBFID officials, this will bring a fresh pool of finance from pension and insurance funds looking for long-term investment avenues. Insurance and pension regulatory norms require that investment papers must have at least an “AA” rating to be eligible for investment from pension and insurance funds. Partial credit enhancement would scale up the rating of papers issued by infrastructure services firms, raising them from “A” to “AA”.

 

At present, pension and insurance funds predominantly invest in government bonds. Going forward, the issuance of sovereign bonds will be limited as the government advances its fiscal consolidation efforts. Hence, these funds will need to explore additional investment avenues. Bonds carrying credit enhancement would provide an opportunity for these funds to invest in the long term, the official added.

 

“This strategic move aims to democratise the corporate bond market by enabling below AA-rated infrastructure companies to tap into bond financing, reducing their traditional dependence on bank funding,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP, adding that regulatory processes need streamlining through standardised guidelines, while guarantee fees should be optimised to make partial credit guarantee structures cost-competitive against conventional financing options.