MUMBAI: Innovations in the bond market can help mobilise Rs 7-10 lakh crore via infrastructure bonds through fiscal 2025, according to ratings form .
“Pooled assets bring scale, diversification benefits and flexibilityto structure the cash flows. This can attract foreign capital and improve the confidence of bond market investors,” says Ashu Suyash, MD & CEO, Crisil.
Take-out financing facilitated by pooling of assets can help banks and other infrastructure financiers to free up a portion of the over Rs 20 lakh crore credit outstanding in the sector for fresh lending to new projects. InvITs, co-obligor structures, covered bonds and securitisation are facilitative mechanisms for pooling assets.
Crisil has suggested a number of innovations like encouraging widespread acceptance of the INFRA EL rating scale by ensuring that various regulators recognise the scale (the Insurance Regulatory Development Authority of India has already allowed investments in bonds issued by infrastructure companies rated not less than “A” along with EL1 as part of approved investments).
It also suggests implementing the draft Reserve Bank of India (Credit Derivatives) Directions, 2021, to facilitate the development of the credit default swaps (CDS) market. This will allow banks, NBFCs, insurers, pension funds, mutual funds, alternate investment funds and foreign portfolio investors to write CDS, enhancing retail participation via tax sops to investments in debt mutual funds – similar to equity-linked savings schemes – and ensure parity in capital gains tax between equity and debt products.
Improving liquidity in the market by fast-tracking the setting up of the institution to provide secondary market liquidity to corporate bonds is another suggestion, and allow corporate bonds as collateral under the Reserve Bank of India’s liquidity adjustment facility window
Crisil also recommends attracting both domestic and foreign capital through exchange traded funds and other index-linked bond funds, which offer lower costs, more transparency, better liquidity and potential to build diversified portfolios.