Why Crisil sees growth in corporate bonds

A vibrant corporate bond market is an imperative as India needs out-of-the-box solutions to spur economic growth in coming years, said the rating company - Crisil.

India’s infrastructure sector will need Rs 30 lakh crore over the next five years while banks will need another Rs 5 lakh crore for their capital requirements till 2019.

“Innovation is a critical ingredient in developing bond market,” said Raman Uberoi, business head – Crisil Ratings. “Continuous innovations in the corporate bond market will eventually open the floodgates of capital for key sectors of the economy. It will enable infrastructure projects to take off, deepen the financial sector, and improve access to credit for SMEs.”

Corporate bonds have delivered higher returns over the past decade compared with government bonds and state development loans. Although the risk factor is higher but there has not been a single default for papers rated triple-A over the past decade.

The average three-year default rate for papers rated AA by Crisil during this period , was just 0.11%.

The rating company sees innovation in bonds through new products like Infrastructure Debt Funds or IDF, commercial –mortgage backed securities or CMBS.

“In the current fiscal we have seen many innovations such as the issuance of the first CMBS, one of the largest future-flow securitisation transactions, introduction of resets in credit enhancement for securitisation transactions, and renewed focus on partial-guarantee mechanisms,” said Pawan Agrawal, chief analytical officer, Crisil.