Rising interest rate roils debt market in H1

PTI Updated - November 08, 2018 at 10:11 PM.

Rising interest rate has seen a 26 per cent de-growth in fresh corporate bond issuances at Rs 2.5 trillion in the first half of FY19 from a high Rs 3.4 trillion in the year-ago period, and may remain subdued in the remaining part of the year as well, says a report.

With such a de-growth, the volume of bond outstanding stood at low Rs 28.4 crore at the end of September, recording a growth of 9.7 per cent as against 14 per cent in March 2018, says domestic rating agency Icra in a report.

However, a shift in credit demand to banks and a low base effect resulted in a 12.6 per cent growth in bank credit as of September. Call money rates have been on an upwsing for a while and is trading at 9.5 per cent and above.

But as investors shifted to short-term debt instruments, outstanding volume of commercial papers rose to Rs 5.5 trillion as of September 30, clipping at 41.5 per cent, says Icra.

Karthik Srinivasan, group head for financial sector rating at the agency warned that the increased risk aversion towards non-banking finance companies (NBFCs) and housing finance companies (HFCs), bond and commercial paper sale is likely to moderate in the H2 as well, pushing these shadow banking entities to scale down their credit growth.”

NBFCs and HFCs accounted for 55-60 per cent of bond issuances during the last two-three years and around 41 per cent of commercial papers outstanding as of end September.

“We expect commercial paper sales to decline by at least Rs 1 trillion during the second half, which will still translate in a growth of 20-22 per cent in outstanding CP volume for the year.

“Further, assuming bond issuances of Rs 3-3.4 trillion for H2 against Rs 2.5 trillion in H1 and Rs 3.4 trillion in H2 of FY18, bond issuances are estimated to decline to Rs 5.5-5.9 trillion, (a decline of 15-20 per cent) in FY19. With such a decline in bond issues, annual growth of bond outstanding shall decline to 7-8 per cent for the year,” says Srinivasan.

Published on November 8, 2018 11:51