Month: February 2021

The supply of corporate bonds in the domestic market can double to about ₹65-70-lakh crore (outstanding) by March 2025, with the financial sector contributing about 50 per cent of the incremental supply, followed by innovation (about 25 per cent) and infrastructure (about 20 per cent), according to Crisil.

Of the aforementioned supply, non-banking finance companies/ housing finance companies will mobilise ₹14-15-lakh crore, followed by innovations (which has potential to mobilise additional ₹7-10-lakh crore via issuances from the infrastructure sector), infrastructure (₹5.5-7.5-lakh crore), corporates (₹2.5-3.0-lakh crore), and banks (₹1.5-2.5-lakh crore).

The potential supply of corporate bonds (outstanding) can increase from 16 per cent of GDP in FY20 to 22-24 per cent of GDP by FY25, according to a presentation by the credit rating agency.

However, demand is expected to be at ₹60-65-lakh crore, despite regulatory push. This means foreign capital will be necessary to bridge the ₹5-lakh crore gap.

The agency assessed that retirement funds will contribute to about 25 per cent of the incremental demand, followed by insurance, mutual funds and regulatory push contributing about 20 per cent each.

Infra build-out via bonds

Referring to the National Infrastructure Pipeline envisaging ₹111-lakh crore of investments between fiscals 2020 and 2025 for India’s infrastructure build-out, Crisil observed that raising such humongous amounts – an onerous ask even in normal times – has become even more difficult because of the fiscal stress caused by the Covid-19 pandemic.

Given this, Indian capital market will have a big role to play in financing the great build-out through bonds, it added.

For the bond market to fill the supply-demand gap, Crsisil said supply-side innovations, such as pooling of assets, a well-capitalised Credit Guarantee Enhancement Corporation, and widespread adoption of the INFRA Expected Loss (EL) rating scale will be pivotal.

On the demand side, the agency felt that credit default swaps, retail participation, index linked funds, and mechanisms to improve liquidity will be enablers.

Besides these, attracting foreign capital is crucial to bridging the emerging supply-demand gap, especially given the crowding-out by gilts stemming from the huge borrowing programme of the government.

Ashu Suyash, MD and CEO, Crisil, said: “Pooled assets bring scale, diversification benefits and flexibility to structure the cash flows. This can attract foreign capital and improve the confidence of bond market investors.”

She observed that take-out financing facilitated by pooling of assets can help banks and other infrastructure financiers free up a portion of the over ₹20-lakh crore credit outstanding in the sector for fresh lending to new projects.

Suyash said InvITs, co-obligor structures, covered bonds and securitisation are facilitative mechanisms for pooling assets.

Shobha Roy

NBFC-MFI Janakalyan Financial Services, which has been witnessing an improvement in collection efficiency and disbursals since July-August last year, is looking to grow its loan book by around 50 per cent in 2021-22.

According to Alok Biswas, MD and CEO of Janakalyan, the collection efficiency, which currently stands at around 90 per cent, is likely to improve to 92 per cent by March this year and further improve to 98-99 per cent by June 2021.

“ The lockdown initially impacted collections and disbursals, but we have been witnessing some growth in disbursements since July-August 2020 onwards. We had also received funding support from our lenders. However, post the episode of Sambandh Finserve in Odisha in October, we had to face some problems in raising funds,” Biswas told BusinessLine.

The Odisha-based microlender Sambandh Finserve was recently at the centre of a controversy after some of its key officials alerted the company’s board members about a purported fraud by the executive management. The company was also said to have defaulted payment to lenders.

This incident had impacted other smaller MFIs and their ability to raise funds due to lack of confidence among lenders. The company’s total loan outstanding, which stood at ₹239 crore as on March 2020, came down to around ₹198 crore as on January 2021. This was because of the drop in disbursements in the wake of the pandemic, and also the Sambandh incident shaking the confidence of investors and lenders.

Fund-raise plans

The Kolkata-based Janakalyan, however, managed to receive support from Sun Tech City Private Ltd through equity infusion. The company has picked up 12 per cent stake in the NBFC-MFI.

The company is also looking to raise close to ₹50 crore by Q1 of next fiscal to support our growth.

“It is a moment of great pride for Janakalyan, specially at this critical juncture when debt capital is not flowing much in mid-size MFIs since the pandemic. Having received this sort of fresh capital infusion validates the business model of MFI, which will boost and re-foster investors’ confidence in the sector,” he said.

Janakalyan was supported by SIDBI Venture Capital Limited with equity support in 2019, and this is the second round of investment other than the promoters.

The much-needed equity capital raised would be used to expand the company’s operations in new geographies.

Janakalyan, which currently has a presence in West Bengal, Bihar and Jharkhand, is looking to expand operations in lower Assam, Tripura and Chattisgarh in the next one to two years.

Our Bureau

Fino Payments Bank is now a scheduled commercial bank and will explore new growth opportunities.

“The Reserve Bank of India has announced through a notification issued dated February 22that Fino Payments Bank has been included in the Second Schedule to the Reserve Bank of India Act, 1934,” it said in a statement on Wednesday.

The scheduled commercial bank status allows Fino Payments Bank to enhance its banking position in the treasury and participation in LAF (Liquidity Facility) window, as per the RBI. It also helps the bank strengthen its business proposition on liabilities generation, it further said.

“It provides strategic impetus for Fino Payments Bank to enhance its scope on balance sheet management and explore additional avenues for business. We are keen to capitalise on the growth opportunities that exist within the regulatory guidelines and build on the momentum of consistent profitability achieved last fiscal,” said Rishi Gupta, Managing Director and CEO, Fino Payments Bank.

As a scheduled commercial bank, Fino Payments Bank will be better positioned to explore and manage government businesses, it said, adding that mandates to pensions, provident funds, and various welfare schemes under the direct benefit transfer (DBT) will help enhance its foot print in the financial inclusion space.