Reserve Bank's (RBI) measures for development of fixed income and currency markets are a step in right direction and can help broaden the market over medium to long term, India Ratings & Research (Ind-Ra) today said.
"These initiatives (measures for the development of the fixed income and currency markets), along with the successful implementation of the bankruptcy laws, can help broaden the markets, assuming some other issues relating to reissuances, stamp duty and asymmetry of information are addressed in the interim," the rating agency said in a statement.
Ind-Ra said it expects higher-rated corporates to directly benefit in the short term, but the investment norms for most investor classes will require changes to move down the credit curve.
"Financial institutions will remain the primary source of funding for corporates, particularly stressed corporates," it added.
According to Ind-Ra estimate, the number of borrowers above the threshold of Rs 10,000 crore debt obligation aggregates 50 - of which potentially 24 are either stressed or fairly vulnerable.
To deepen the corporate bond market, RBI yesterday announced a slew of changes in fixed income and currency markets. It allowed lenders to issue 'masala bonds' and will accept corporate bonds under the liquidity adjustment facility (LAF).
The rating agency noted that the increase in the aggregate partial credit enhancement ceiling to 50 per cent from the earlier 20 per cent will help corporates raise money through bonds.
Noting that in most developed bond markets, corporate bonds are permitted to be used as collateral for liquidity operations, Ind-Ra said allowing them as collateral for liquidity operations will improve their demand.
"This will help develop a robust secondary market for AAA rated bonds (assuming the final guidelines restrict it to AAA paper)," it said.
Stating that with the change in the issuance guidelines for masala bonds, the rating agency said India banks can take advantage of the negative sovereign yield and use this opportunity to tap international markets.
Ind-Ra estimates that banks need to raise Rs 71,000 crore through bonds in 2017-18, assuming credit growth of 8-9 per cent.
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