Home / Business and Economy / PSU Borrowing Shifts Offshore, Easing India's Bond Market
PSU Borrowing Shifts Offshore, Easing India's Bond Market
1 Jul
Summary
- Corporate bond yields have fallen significantly from their recent peaks.
- Easier external borrowing norms for PSUs are shifting fundraising offshore.
- This offshore shift is reducing domestic bond market crowding and boosting demand.
Indian companies and non-banking financial companies (NBFCs) are increasingly tapping the corporate bond market following a notable decline in borrowing costs. This resurgence follows regulatory changes that encourage state-run entities to secure funding internationally, subsequently opening up domestic debt markets for private issuers. Yields on five-year AAA-rated corporate bonds have dropped to approximately 7.4-7.43%, a significant decrease from their recent peak amid geopolitical concerns.
The Reserve Bank of India's (RBI) June measures, which include easing external commercial borrowing (ECB) norms and subsidizing hedging costs for certain public sector undertakings (PSUs), are anticipated to divert a portion of PSU fundraising to international markets. This strategic move aims to alleviate pressure on the domestic bond market, thereby enhancing demand for issuances from private companies.
Market participants observed a virtual shutdown of the bond market earlier due to sharply hardened yields, leading many borrowers to rely on bank loans. However, with the recent fall in corporate bond yields, there is an expectation that reliance on bank loans will decrease as issuers gradually return to the bond market. This shift indicates a move towards normalcy in the debt markets, although global geopolitical fragilities persist.
