India’s top debt arranger expects borrowers to raise more loans this year and rely less on the rupee bond market, where yields have spiked after record sales in 2020.
Rupee-denominated bond sales by Indian corporates may fall 10% to 15% after touching a high of $126 billion last year, according to Neeraj Gambhir, president of treasury and markets at Axis Bank, which has dominated the nation’s rupee debt market since 2007, according to data compiled by Bloomberg.
“In a way, the extreme advantage of the bond market over loans has dissipated with yields rising by 60-90 basis points over last two months, while lending rates haven’t changed,” Gambhir said in an interview.
Read more about India corporate bond market outlook
The shift is already underway. Loans to businesses grew 1.5% between November and January, compared with a contraction in the previous seven months, according to data from the Reserve Bank of India. The growth in bond sales slowed to 15% from 54% over that period. The change follows a $15 billion plus central bank stimulus last year, which reopened the bond market to smaller borrowers and eased the nation’s credit crunch. Banks, meanwhile, may move toward less-profitable, yet more reliable corporate lending.
Average yields on top-rated three-year rupee corporate bonds rose by 74 basis points to 5.61% last month, according to data compiled by Bloomberg. That’s the steepest monthly surge since July 2013. The yields remained at an eight-month high on Thursday.
By comparison, the benchmark lending rate from the nation’s largest lender, State Bank of India, has held steady at 7% since June 2020.
Read more on issuers pulling debt sales as yields rise
Axis Bank, India’s third-largest private lender, has been reducing its exposure to low-rated companies, which offered higher margins, Gambhir said. Instead, the Mumbai-based bank has expanding its services to higher-rated firms. To achieve this and to boost fees, the firm is bolstering its transaction services and plans to hire product experts for that business.
The strategy will help the bank “to get a better share of corporate cash flows,” Gambhir said.
(Updates bond yields in fifth paragraph)