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Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 44447 August 2014

India: Preparing the Bond Guarantee Fund for India (Financed by the Japan Fund for Poverty Reduction)

Prepared by CRISIL Risk and Infrastructure Solutions Limited

Mumbai, India

For Department of Financial Services, Ministry of Finance

Asian Development Bank

TA-8279 IND: Preparing the Bond Guarantee Fund for India

– 1 Consulting Firm (44447-012)

Market Assessment Report

August 2014

CRISIL Risk and Infrastructure Solutions Limited


[iii] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

Abbreviations

ADB Asian Development Bank

AUM Assets Under Management

BGFI Bond Guarantee Fund for India

CAGR Compounded Annual Growth Rate

CDR Corporate Debt Restructuring

COD Commercial Operations Date

CRIS CRISIL Risk and Infrastructure Solutions

CRISIL Credit Rating and Information Services India Ltd.

CRR Cash Reserve Ratio

CSO Central Statistics Office

ECB External Commercial Borrowings

EPF Employee Provident Fund

EPFO Employees’ Provident Fund Organisation

GCF Gross Capital Formation

GDP Gross Domestic Product

GFCF Gross Fixed Capital Formation

GIC General Insurance Corporation of India

GNPA Gross Non-Performing Asset

HDFC Housing Development and Finance Corporation

HNI High Net-Worth Individual

HPCL Hindustan Petroleum Corporation Limited

IDBI Industrial Development Bank of India

IDF Infrastructure Debt Fund

IDFC Infrastructure Development & Finance Corporation

IFC International Finance Corporation

IFCI Industrial Finance Corporation of India

IIFCL India Infrastructure Finance Company Ltd.

IL&FS Infrastructure Leasing & Financial Services Ltd.

IRDA Insurance Regulatory and Development Authority

LIC Life Insurance Corporation of India

MOSPI Ministry of Statistics & Programme Implementation

MSME Micro, Small & Medium Enterprises

NBFC Non-Banking Finance Company

NCD Non-Convertible Debenture

NHAI National Highways Authority of India

NHB National Housing Bank


[iv] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

NHDP National Highways Development Project

NPS National Pension System

NTPC National Thermal Power Corporation

ONGC Oil and Natural Gas Corporation

PCG Partial Credit Guarantee

PFC Power Finance Corporation

PFRDA Pension Fund Regulatory and Development Authority

PMI Purchasing Managers’ Index

PMS Portfolio Management Services

PPP Public-Private Partnership

PSU Public Sector Undertaking/Utility

RBI Reserve Bank of India

REC Rural Electrification Corporation

SARFAESI The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

SBI State Bank of India

SEB State Electricity Board

SEBI Securities and Exchange Board of India

SIDBI Small Industries Development Bank of India

SLR Statutory Liquidity Ratio

SPV Special Purpose Vehicle

USA United States of America

USAID United States Agency for International Development

USD United States Dollar

UTI Unit Trust of India

WPI Wholesale Price Index


[v] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

Executive Summary

The Bond Guarantee Fund for India (BGFI seeks to catalyze the nascent bond market…

BGFI is proposed to be a credit enhancement mechanism, giving guarantees to long-term bond

issuances (by entities (private and public) in the infrastructure and non-infrastructure sectors) of

issuers with credit rating less than AA (category); through this credit enhancement these bond issues

would achieve a structured rating of AA or above and would therefore be able to attract bond market

investors.

CRISIL Infrastructure Advisory (CRIS) has been appointed by ADB to design such a fund – ascertain

the business case through market assessment, analyze the financial viability, develop the structure

and frameworks and conduct road shows and seminars. A kick-off meeting with the Steering

Committee was conducted on June 2, 2014 and subsequently the inception report was submitted on

June 23, 2014. This report details out the first stage of the engagement i.e market assessment.

Based on the analysis conducted – investments required over a period of 10 years, supply of

traditional sources of funds and their constraints – it can be concluded that bond markets need to play

a significant part to fund these investments. There is a huge pool of lower rated entities, rated lower

than AA (and especially in the A and BBB categories) which are practically serviced only by banks

today and which would benefit from the bond market and therefore a mechanism such as BGFI.

Moreover all market participants, interacted with during the course of this stage, were positively

disposed towards the overall concept of BGFI.

A comprehensive market assessment exercise was undertaken to ascertain the business case

for BGFI over a period of 10 years…

The exercise undertaken was two-fold:

First, an analytical projection of investments and debt requirement (long term and for entities

rated less than AA) for both infrastructure and non-infrastructure sectors for 10 years was

done – against which supply of debt from the existing sources of finance such as banks,

NBFCs, ECBs, and bond investors was measured. The objective of this exercise was to arrive

at the potential gap in debt financing.

Second, extensive interactions were held with a cross-section of stakeholders

(government/ministry departments, regulators, investors, bond issuers, investment banks and

lenders) to gain perspectives on the overall concept and attractiveness of the same to them.

Projected gap of ~INR 551 lakh crores in infrastructure and ~INR 35 lakh crores in non-

infrastructure…

1 10 million = 1 crores, 1 trillion = 1 lakh crores


[vi] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

Figure 1: Demand-supply assessment for long-term debt for ratings below AA (INR lakh crores)

Source: CRIS analysis

A vibrant bond market could address this gap…but beset with several issues

The Indian corporate bond market lacks depth amounting to only 15% of the GDP (the figures for the

US and Singapore bond market are 126% and 47% respectively) in 2013-14. The market suffers from

concentration issues – with regards to the type of issuers and rating of issuers – financial sector

accounts for more than 70% of the issuances through private placement, the market is predominantly

restricted to issuances rated AA and above. Moreover, bond investors are credit risk averse and

prevented by regulations and / or internal investment policies from investing in issuances rated less

than AA.

Credit enhancement could help low rated issuers access the bond market…existing

mechanisms are nascent and cannot address the huge gap on their own

Three such mechanisms are currently used for the infrastructure sector:

Partial Credit Guarantee by India Infrastructure Finance Company Limited (IIFCL) and ADB –

The scheme was launched in 2012. Under the partial credit guarantee scheme, IIFCL,

supported by ADB, provides partial credit guarantee to enhance the ratings of the bond

issuances of projects (refinancing, commissioned projects). The scheme hasn’t seen much

traction yet. Two pilot transactions with GMR and L&T fell through due to the high interest

regime then and therefore the minimal savings in cost that was on offer to the promoters. It is

understood that 5-6 new proposals are being considered. Recent reports indicate that the

initial fund to cater to the PCG scheme would be around INR 1500 crores (almost 50% is

funded by ADB). This would be enough to generate a business of INR 6,000-9,000 crores.

Infrastructure Debt Fund (IDF) – Two types of IDFs are allowed, one structured as a non-

banking finance company (NBFC) and the other as a mutual fund (MF).

o IDF-NBFCs – Take-over or refinancing of loans of commissioned projects through a

tripartite agreement between the IDF, the concessionaire and the project authority.

Tripartite agreements for roads and ports are in place. There are two operational


[vii] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

IDFs, one promoted by ICICI and other by L&T. Interactions reveal that these funds

are finding it tough to find adequate assets in the market; primary reason is that

banks are not willing to sell off their assets after project commissioning as they

believe that risks come down substantially after commissioning of projects.

Discussions are also underway to do away with the tripartite agreement which could

result in lower credit rating for the respective IDFs, impacting their ability to attract

long term funds, as well as impacting their investments.

o IDF-MFs – Three IDFs set up by IL&FS, IIFCL and SREI. Investment guidelines

mandate them to invest at least 90% of AUM in infrastructure companies or

infrastructure projects/SPVs or bank loans in terms of completed and revenue

generating projects or public finance institutions or infrastructure finance companies.

Today while they are technically allowed to invest upto BBB, there are hardly any

investments in less than AA credits. The appetite of these funds for investment

directly in projects in the infrastructure sector is therefore questionable.

Credit enhancement by banks – The recent draft circular by RBI, which is open to public

comments allows restricted credit enhancement (by 20%/2 notches whichever is lower)

through provision of subordinate debt or a line of credit. Considering the fact that

infrastructure sector projects in general are rated not above BBB/BB, would need a higher

level of credit enhancement to take them to AA. Moreover, the current capital requirements as

mandated by the circular are prohibitive. Therefore, in the present form this mechanism is not

expected to be successful.

Clearly the viability of most of these mechanisms is in question. Moreover, the large market gap

cannot be addressed without new mechanisms being introduced. The RBI has recently issued a

circular, following the announcement in the Union Budget 2014-15, allowing banks to issue long-term

infrastructure bonds which are exempted from Cash Reserve Ratio (CRR), Statutory Liquidity Ratio

(SLR) and Priority Sector Lending limits. This initiative would help the banks two-fold, i) manage their

assets/liabilities better and ii) help the higher rated banks access cheaper sources of funds (due to

the exemptions) and thereby become aggressive in pricing of loans (interactions reveal that AAA

rated banks would probably enjoy pricing advantages to the tune of 50-120 bps). However the

initiative would do little to catalyze the bond market in terms of helping low rated entities access it.

Tremendous opportunity for BGFI…overall unanimous approval for such a mechanism, from

all stakeholders

A diverse set of stakeholders – government/ministry departments, regulators, investors, issuers,

lenders, and investment bankers – were consulted with during this stage. All of them were well

disposed towards such a concept and believed that such a mechanism could help kick-start the bond

market in the country.

Key issues were discussed and inputs were garnered from a wide cross-section of stakeholders on

the following issues:

Who will own this entity? – Strong ownership is required to attain AAA rating. Majority

government holding might create a moral hazard, while majority private sector holding might

not promote acceptability in the market. A widely held structure, professionally run, with

representation from both government and private sector could be explored along the lines of

IDFC – IDFC when set up had 35% government holding, 5% by IDBI, 40% by foreign

investors and 20% by domestic institutions. Government holding ensured easy access to

various stakeholders and forums within the government which helped in development of

IDFC.


[viii] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

How will the entity be capitalized? – In addition to ownership, the entity should be sufficiently

capitalized to attain AAA rating. The capital could be upfront through direct infusion or by

means of callable capital. The government could also participate through a long-term

subordinate debt – case in point; the government has provided a 50-year subordinate debt

to IDFC.

What will be the legal structure of this entity? – The entity is meant to be a pure guarantee

company. Thus the operations of the entity do not strictly fall under the ambit of any of the

current regulated structures in India. A potential option is as a bond insurance company

(akin to a monoline insurer) under IRDA. Structuring the entity as a NBFC under RBI may

also be explored but it may lead to issues pertaining to exposure limits which NBFCs are

subjected to unless specific exemptions are obtained for the same.

What will be the business model of this entity?

o Products – Partial credit guarantee as an instrument is still nascent in India. It might

be prudent to employ a mix of full guarantees and partial guarantees to begin with to

establish credibility and acceptability.

o Rating enhancement – To begin with BGFI could target entities rated A and BBB

category, and enhance them to AA+/AAA. This would promote acceptability in the

market.

o Pricing – Pricing might be critical to wean away borrowers from the bank loan

market. Prominent bigger firms enjoy a long relationship with banks and therefore

favourable interest rates. The prospective cost savings in the bond market might not

be attractive enough to pull these firms away from their relationships. It would

therefore be advisable to target smaller promoters, with good credit quality, but who

do not enjoy favourable interest rates with the banks currently.

This report establishes the need for a facility such as BGFI. The next stage of the engagement,

which will be part of the interim report, will be to ascertain the financial viability of this facility

as a standalone business.

[ix]

Contents

1. Introduction ..................................................................................................................................... 1

1.1 Market estimation .................................................................................................................... 1

1.1.1 Classification of infrastructure and non-infrastructure sectors .................................. 2

1.2 Structure of the report ............................................................................................................. 3

2. Overview of the Indian Economy .................................................................................................... 4

2.1 Macroeconomic overview ........................................................................................................ 4

2.1.1 Sectoral trends ........................................................................................................... 4

2.2 Key indicators and outlook ...................................................................................................... 5

2.2.1 Infrastructure sector indicators .................................................................................. 5

2.2.2 Macroeconomic outlook ............................................................................................. 6

3. Investments in India and Debt Requirement ................................................................................... 8

3.1 Methodology to forecast investments and estimate debt requirement ................................... 8

3.2 Recent trends in investments .................................................................................................. 8

3.2.1 Investment in infrastructure sector............................................................................. 9

3.2.2 Investment in non-infrastructure sector ................................................................... 13

4. Financial Sector in India and Debt Supply .................................................................................... 16

4.1 Overview of the Indian financial sector ................................................................................. 16

4.2 Sources of debt financing and estimation of debt supply ..................................................... 17

4.2.1 Banks ....................................................................................................................... 17

4.2.2 Non-banking finance companies (NBFCs) .............................................................. 24

4.2.3 External commercial borrowings (ECBs) ................................................................. 27

4.2.4 Insurance sector ...................................................................................................... 30

4.2.5 Other suppliers of debt ............................................................................................ 33

4.3 Gap assessment ................................................................................................................... 37

4.3.1 Infrastructure sector ................................................................................................. 37

4.3.2 Non-infrastructure sector ......................................................................................... 38

4.4 Sensitivity analysis ................................................................................................................ 38

4.4.1 Adjustment for credit ratings bracket ....................................................................... 38

4.4.2 Adjustment to investment by insurance sector in less than AA ............................... 39

4.4.3 Adjustment to investment by EPFO, pension funds in less than AA ....................... 39

4.4.4 Adjustment to long-term tenure of credit provided by banks ................................... 40

5. Requirement of Bond Market in India ........................................................................................... 42

[x]

5.1 Key Issues with the bond market in India ............................................................................. 43

5.1.1 Lack of depth in corporate bond market in India ..................................................... 44

5.1.2 Low credit rating for infrastructure projects ............................................................. 44

5.1.3 Absence of bond Market for low rated paper ........................................................... 45

5.1.4 Low risk appetite of investors and regulatory restrictions ........................................ 45

5.1.5 Limited secondary market activity............................................................................ 46

5.1.6 Lack of awareness and information ......................................................................... 46

5.2 Credit enhancement can help bridge the gap ....................................................................... 46

5.3 Sectors that can potentially tap the bond market through credit enhancement .................... 47

5.3.1 Infrastructure ............................................................................................................ 47

5.3.2 Non-infrastructure .................................................................................................... 47

5.4 Existing credit enhancement mechanisms in India ............................................................... 47

5.4.1 Partial Credit Guarantee Scheme (PCG) ................................................................ 47

5.4.2 Infrastructure Debt Fund (IDF) ................................................................................. 48

5.4.3 Credit enhancement by banks ................................................................................. 49

6. Initial Thoughts on Bond Guarantee Fund for India and Next Steps ............................................ 51

6.1 Stakeholder’s initial inputs on BGFI ...................................................................................... 51

6.2 Next steps ............................................................................................................................. 54

7. Annexure 1 – Stakeholder meetings ............................................................................................. 55

[xi]

List of Tables

Table 1: Classification of infrastructure and non-infrastructure sectors .................................................. 3

Table 2: Growth in GDP of India at constant prices (2004-05 prices (percent)) ..................................... 4

Table 3: Sectoral share in GDP (%) ........................................................................................................ 5

Table 4: Global Competitiveness Report - Ranking for Infrastructure .................................................... 6

Table 5: Contribution of investment to GDP in percentage terms (at current market prices) ................. 8

Table 6: Comparison of infrastructure investments across Five Year Plans – Planning Commission

(INR crores) ............................................................................................................................................. 9

Table 7: Planning Commission estimates for private corporate sector debt requirement in the

infrastructure sector during 12th Five Year Plan (INR crores) ............................................................... 11

Table 8: Forecast for investment and debt requirement in infrastructure sector (INR crores) ............. 13

Table 9: Investments in non-infrastructure sectors ............................................................................... 13

Table 10: Estimated Private Debt Requirement in non-infrastructure sector ....................................... 15

Table 11: Outstanding credit by scheduled commercial banks in India (INR crores) ........................... 18

Table 12: Incremental flow of bank credit to infrastructure (INR crores) .............................................. 18

Table 13: Outstanding bank credit to non-infrastructure sector (INR crores) ....................................... 19

Table 14: Overall and incremental credit by scheduled commercial banks .......................................... 21

Table 15: Forecast of debt supply from banks to infrastructure sector (INR crores) ............................ 23

Table 16: Forecast of debt supply from banks to non-infrastructure sector (INR crores) ..................... 24

Table 17: Loans and advances by NBFCs (INR crores) ....................................................................... 24

Table 18: Loans and advances by NBFC-IFCs (INR crores) ................................................................ 25

Table 19: Forecast of debt supply from NBFC-IFCs to infrastructure sector (INR crores) ................... 26

Table 20: Total ECB Inflow (INR crores) ............................................................................................... 28

Table 21: Flow of ECBs to infrastructure sector (INR crores) ............................................................... 28

Table 22: Data for ECBs to non-infrastructure sector for the period January-April 2014 ..................... 28

Table 23: Forecast of debt supply through ECBs to infrastructure sector (INR crores) ....................... 29

Table 24: Forecast of debt supply through ECBs to non-infrastructure sector (INR crores) ................ 30

Table 25: Incremental flow of credit from insurance companies into infrastructure sector (INR crores)

.............................................................................................................................................................. 31

Table 26: Investments in infrastructure sector by life insurance companies (INR crores) ................... 31

Table 27: Forecast of debt supply from insurance companies to infrastructure sector (INR crores) ... 32

Table 28: Forecast of debt supply from insurance companies to non-infrastructure sector (INR crores)

.............................................................................................................................................................. 32

[xii]

Table 29: EPFO corpus (INR crores) .................................................................................................... 33

Table 30: EPFO portfolio managers ..................................................................................................... 33

Table 31: Corporate Bonds Investment Pattern – EPFO (INR crores as of September 2013) ............ 34

Table 32: Corpus size and investment pattern – NPS (INR crores) ..................................................... 34

Table 33: Estimated debt supply – NPS (INR crores) .......................................................................... 35

Table 34: Estimated Debt Supply - Mutual Funds ................................................................................ 36

Table 35: Historical debt supply from multilateral/bilateral Institutions ................................................. 36

Table 36: Estimated Debt Supply from Multilateral/Bilateral Institutions .............................................. 37

Table 37: Gap assessment for infrastructure sector (INR crores) ........................................................ 37

Table 38: Gap assessment for non-infrastructure sector (INR crores) ................................................. 38

Table 39: Adjustment to credit ratings bracket...................................................................................... 38

Table 40: Sensitivity - insurance sector Supply Increase ..................................................................... 39

Table 41: Sensitivity - Pension funds sector supply increase ............................................................... 39

Table 42: Sensitivity - Long term debt to Infrastructure from Banks ..................................................... 40

Table 43: Sensitivity - Long term debt to Non-Infrastructure from Banks ............................................. 40

Table 44: Past PCG transactions in India ............................................................................................. 48

Table 45: List of stakeholders met ........................................................................................................ 55

[xiii]

List of Figures

Figure 1: Demand-supply assessment for long-term debt for ratings below AA (INR lakh crores) ....... vi

Figure 2: Approach and methodology for market assessment ............................................................... 2

Figure 3: Sector-wise growth rate of GDP .............................................................................................. 5

Figure 4: Methodology to estimate debt requirement ............................................................................. 8

Figure 5: Investment in Infrastructure (% of GDP) for other emerging economies ............................... 12

Figure 6: Mode of financing of infrastructure investments .................................................................... 16

Figure 7: Corporate bonds outstanding as a percentage of GDP, 2013 – Replaced China with

Thailand................................................................................................................................................. 17

Figure 8: Methodology adopted for estimating debt supply from banks ............................................... 17

Figure 9: Banking sector GNPA and RA (%) ........................................................................................ 20

Figure 10: Exposure of the banking system to some of the large business groups (INR ‘000 crores) . 22

Figure 11: Methodology adopted for estimating debt supply from NBFCs ........................................... 24

Figure 12: Methodology adopted for estimating debt supply from ECBs ............................................. 27

Figure 13: Methodology adopted for estimating debt supply from insurance companies .................... 30

Figure 14: Issuances by issuer type (INR crores) ................................................................................. 43

Figure 15: Sectoral share in primary market issues ............................................................................. 43

Figure 16: Amount raised through private debt placement (INR crores) .............................................. 44

Figure 17: Issuances by issuer type (INR crores) ................................................................................. 44

Figure 18: Long-term instruments rated below AA in infrastructure sectors (INR crores) .................... 44

Figure 19: Bond issuances by rating (% of issuance values) ............................................................... 45

Figure 20: 10-year spreads data for AA, A and BBB category bonds in India ...................................... 54


[1] TA-8279 IND: Preparing the Bond Guarantee Fund for India Market Assessment Report

1. Introduction

The Ministry of Finance (MOF) has requested the Asian Development Bank (ADB) to examine the

modalities, scope and potential for the establishment of the Bond Guarantee Fund for India (BGFI)

that supports the development of the local currency bond market to meet India’s infrastructure and

non-infrastructure financing requirements.

CRISIL Infrastructure Advisory (CRIS) has been appointed for designing such a fund. The assignment

is being undertaken under a technical assistance grant from ADB and under the aegis of the MOF.

The MOF has constituted a Steering Committee – to oversee the progress of this assignment –

comprising representatives from Department of Financial Services (DFS) – Chairperson, Department

of Economic Affairs (DEA) – Observer, Insurance Regulatory and Development Authority (IRDA),

Pension Fund Regulatory and Development Authority (PFRDA), Reserve Bank of India (RBI), and

Securities and Exchange Board of India (SEBI).

The first meeting with the Steering Committee was held on June 2, 2014 wherein CRIS presented the

objectives of the study and detailed work programme – approach and methodology, work plan and

deliverables’ schedule. Thereafter, a detailed Inception Report was submitted by CRIS on June 23,

2014 presenting the afore-mentioned details.

This document – market assessment report – forms the second deliverable of this study. It is advised

that this report is read post reading of the inception report.

1.1 Market estimation

BGFI is proposed to be a credit enhancement mechanism, giving guarantees to long-term bond

issuances (by entities (private and public) in the infrastructure and non-infrastructure sectors) with

credit rating less than AA (category); through this credit enhancement these bond issues would

achieve a structured rating of AA or above and would therefore be able to attract bond market

investors. With this background, this report strives to estimate a market/ a business case for BGFI.

The estimation is structured in the following broad manner for both the infrastructure and non-

infrastructure sectors.



Figure 2: Approach and methodology for market assessment

Forecast investments/fixed capital formation (for 10 years from 2015-16 to 2024-25) by

entities (public and private) and estimate the demand for debt

Forecast supply of debt (for the same time period) from the existing traditional sources of

finance – banks (also accounting for the recent initiative to allow them to issue long-term

infrastructure bonds), non-banking finance companies (NBFCs), external commercial

borrowings (ECBs) amongst others

Estimate if there is a gap between demand and supply

Conduct a broad analysis of the possible addressable gap by some of the recently announced

mechanisms such as partial credit guarantee (PCG), Infrastructure Debt Fund (IDF) and other

credit enhancement mechanisms

Estimate a possible market for BGFI. The existing bank loan ratings will also be analysed to

assess the quantum of long-term bank loans required for entities rated less than AA.

The detailed methodology is given in pertinent sections from Chapter 3. The analysis is based on

primary and secondary research including interactions with seasoned internal as well as external

stakeholders.

1.1.1 Classification of infrastructure and non-infrastructure sectors

For the estimation of investment requirements and supply, all economic sectors have been divided

into two main sectors, namely, infrastructure and non-infrastructure. This division is based on the



definition of infrastructure sectors as specified by RBI2 as well as the sectors considered under capital

formation in the National Account Statistics prepared by the Ministry of Statistics and Programme

Implementation (MOSPI)3.

The following table presents the sub-sectors considered as part of infrastructure and non-infrastructure sectors.

Table 1: Classification of infrastructure and non-infrastructure sectors

Sector Sub-sectors

Infrastructure

Mining & Quarrying

Electricity, gas & water supply,

Construction

Transport, Storage & Communication

Non-Infrastructure

Agriculture, forestry & fishing,

Manufacturing (Both registered & unregistered)

Trade, hotels and restaurants

Financial, insurance, real estate & business services,

Community, social & personal services

Source: RBI, MOSPI

1.2 Structure of the report

The purpose of this report is to assess the business potential/estimate the market size for BGFI. The

report is structured as follows:

Chapter 1 (this chapter) provides an introduction to this report and puts forth the structure of

the report.

Chapter 2 provides a brief overview on the Indian economy and outlook.

Chapter 3 looks at historical trends and estimates of future investments in the infrastructure

and non-infrastructure sectors in India; following which an estimate of debt to fund these

investments is arrived at.

Chapter 4 gives an overview of the current sources of financing in India, the key constraints

and issues in present financing sources. This chapter also estimates the likely debt supply

from these sources in the future and the resulting gap between debt demand and supply.

Chapter 5 establishes the importance of the bond market and the key issues facing the bond

market in India today. The chapter also touches upon why credit enhancement would be

important to catalyze the bond market and also looks at the existing credit enhancement

mechanisms in the country.

Chapter 6 establishes the need for Bond Guarantee Fund in India and presents the initial

thoughts on some of the key issues (highlighted in the inception report) and summarizes

discussions with stakeholders on these issues. This chapter also presents the next steps on

this engagement.

2 Circular RBI/2013-14/378 dated November 25, 2013

3 http://mospi.nic.in/Mospi_New/upload/NAS2014/NAS14.htm



2. Overview of the Indian Economy

2.1 Macroeconomic overview

The Indian economy grew at a fast clip of over 9% for three successive years before it slowed down

due to the global financial crisis in 2008-09. It however recovered strongly and posted almost

equivalent pre-crisis growth figures in the two subsequent years. In recent times, the economy has

suffered a slowdown, witnessing its lowest growth rate in 2012-13.

A combination of domestic factors, borne out of weak policy decisions, such as high inflation, weak

currency, and drop in foreign investment coupled with global stress factors such as the sovereign debt

crisis in the Euro-zone that unfolded in 2010-11 (and the subsequent recession in the Euro-area)

were primary reasons for the slow growth.

Table 2: Growth in GDP of India at constant prices (2004-05 prices (percent))

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

9.57 9.32 6.72 8.59 8.91 6.69 4.47 4.74

Source: CSO Release May 30, 2014, RBI, EAC to PM, Ministry of Finance; May 31, 2014

The economy began to show signs of recovery in 2013-14, with the second quarter of 2013-14

recording a growth of 4.8%. This follows a growth rate of 4.4% in the first quarter which was the

lowest growth recorded in 16 quarters. The external sector witnessed a turnaround after the first

quarter of 2013-14, the year ending with a current account deficit of 1.7% of GDP as against 4.7 per

cent in 2012-13. Improvement has also been observed on the fiscal front, with the fiscal deficit

declining from 5.7% of GDP in 2011-12 to 4.9% in 2012-13 and 4.5% in 2013-14. Other indications of

recovery are the moderation on year-on-year WPI inflation to 6.0% in 2013-14 vis-à-vis 8.9% in 2011-

12 and 7.4% in 2012-13, accelerated growth in agriculture and a mild recovery in manufacturing.

2.1.1 Sectoral trends

In the last decade, the biggest contributors to the economy growth were the services and industry

sectors. As seen in the subsequent graph, between 2006-07 and 2007-08 when the annual growth

rate of GDP was over 9 per cent, the performance of these two sectors was particularly strong.

The slowdown witnessed in the following years, however, was broad-based across all sectors. The

agriculture sector witnessed a steady decline in growth rate from 7.9 per cent in 2010-11 to 3.6% in

2011-12 and further to 1.9 per cent in 2012-13. Within the industry sector, mining and manufacturing

sectors have decelerated significantly over the period 2010-11 and 2012-13. Growth in services which

had averaged 10 per cent for six years, reduced to 8.2 per cent and 7.1% in 2011-12 and 2012-13

respectively. Within the services sector, transport (particularly railways) and communications, as well

as banking and insurance, slowed in 2012-13 vis-à-vis 2011-12.

In 2013-14, the agriculture and allied sectors achieved a growth of 4.7% due to favourable monsoons,

while business services also witnessed recovery due to moderate revival in the global economy.



Figure 3: Sector-wise growth rate of GDP

Source: Planning Commission

The share of the agriculture and allied sectors in GDP has been consistently declining while the

shares of services and industry sectors have witnessed a rising trend. Between 1999-2000 and 2012-

13, the share of the agriculture and allied sectors in GDP declined by 9.3 percentage points, while

that of industry and services increased by 0.5 and 8.8 percentage points respectively.

Table 3: Sectoral share in GDP (%)

Sector 1999-2000 2007-08 2012-13 2013-14 (P)

Agriculture & allied

23.2 16.8 13.9 13.9

Industry 26.8 28.7 27.3 26.1

Services 50.0 54.4 58.8 59.9

Source: National Accounts Statistics, CSO. (P) – Provisional

2.2 Key indicators and outlook

The World Economic Forum’s Global Competitiveness Report 2013-14 ranks India 60th out of 140

countries on the global competitiveness index. Other emerging economies, such as Brazil, China, and

Sri Lanka are ranked higher than India. In terms of basic requirements such as institutions,

infrastructure, macroeconomic environment, health, and primary education, India is ranked 96th.

Inadequate infrastructure has been cited as the most problematic factor for doing business in India.

2.2.1 Infrastructure sector indicators

The overall status of the infrastructure sector in India is currently bleak. The Global Competitiveness

Report 2013-14 ranks India 85th out of 140 economies in terms of infrastructure, scoring 3.7/7.0 in the

4.2%

5.8%

0.1%

0.8%

7.9%

5.0%

1.4%

4.7%

12.2%

10.3% 10.0%

10.5%

9.2%

3.5%

0.6%

1.3%

10.1% 10.3% 10.0%

10.5% 9.8%

8.2%

7.1% 7.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

2%

4%

6%

8%

10%

12%

14%

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Agriculture & Allied Industry Services GDP



global competitiveness index. Other emerging economies, such as China, Brazil, and Sri Lanka are

ranked higher and boast of better basic infrastructure, as shown in the table below.

Table 4: Global Competitiveness Report - Ranking for Infrastructure

Country Rank Global Competitiveness Index Score

(Out of 7)

Hong Kong 1 6.7

Singapore 2 5.9

USA 15 5.8

China 48 4.5

Brazil 56 4.3

Sri Lanka 73 4.0

India 85 3.7

Pakistan 121 2.7

Source: Global Competitiveness Report 2013-14, World Economic Forum

Further, India is ranked 84th in terms of road infrastructure, 19

th in terms of railroad, 70

th in terms of

port infrastructure, 61st in terms of quality of air transport infrastructure and 111

th in terms of electricity

supply.

Time overruns in the implementation of projects continue to be one of the main reasons for

underachievement in many infrastructure sectors. According to the Ministry of Statistics and

Programme Implementation (MOSPI) Flash Report for February 2014, of the 239 central-sector

infrastructure projects costing INR 1000 crores and above, 99 are delayed with respect to the latest

schedule and 11 have reported additional delays with respect to the date of completion reported in the

previous month. Delays in land acquisition, municipal permission, supply of materials, award of work,

operational issues, etc. continue to drag down the implementation of these projects and hinder

efficient capital expenditure.

Further, infrastructure projects are also subject to financing constraints since they are typically

complex, are highly capital-intensive, and have long gestation periods. Infrastructure projects are

characterized by non-recourse or limited recourse financing. Initial financing requirements form a

large proportion of the total cost of the project, owing to the high capital requirements. In India, the

sector is over-dependent on banks for its financing due to the absence of other alternative sources of

long-term finance. Banks have been increasingly facing stress due to overexposure to the sector and

increasing asset-liability mismatches.

Resolving bottlenecks in infrastructure investments and associated financing issues is the need of the

hour.

2.2.2 Macroeconomic outlook

With the appointment of a new government which is widely touted to be progressive, the economy is

expected to regain lost ground and move upwards. This growth is based on the expectations of

modest revival in the global economy, improved balance of payments situations and better

performance of the manufacturing sector, which registered a growth of only 2% per annum in the last

two years.



Global economic activity is expected to strengthen in the current year on the back of some recovery in

advanced economies. The World Bank has predicted a growth rate of above 1% for the Euro area as

against the contraction witnessed in 2012 and 2013. The growth outlook for emerging Asian

economies is generally benign with some grappling with inflation, structural bottlenecks, and external

imbalances.

The Union Budget 2014-15 has announced steps to raise private consumption growth as well as push

growth in the manufacturing and construction/infrastructure sectors. While these steps would help in

industrial recovery, weaker monsoons are likely to adversely impact growth in the short term.

The Economic Survey of India 2013-14 (July, 2014) has predicted a growth rate of GDP at constant

prices in the range of 5.4 – 5.9% in 2014-15 for the economy. This assumes the revival of growth in

the industrial sector witnessed in April 2014 to continue for the rest of the year, the generally benign

outlook on oil prices and the absence of pronounced destabilizing shocks. However, as per our

estimates, it is expected that GDP will grow at a lower growth rate of 5.5% in the short term, given the

likely deficit in monsoons in 2014-15 that could affect agriculture production.



3. Investments in India and Debt Requirement

3.1 Methodology to forecast investments and estimate debt

requirement

Debt requirement has been estimated separately for both infrastructure and non-infrastructure sectors

in the future, based on the likely economic growth and fixed capital formation. The flowchart in the

following figure gives a snapshot of the methodology utilized for estimating this requirement.

Figure 4: Methodology to estimate debt requirement


Detailed analysis and assumptions are present in the Excel document accompanying this report.

3.2 Recent trends in investments

It is an understood fact that there is a positive correlation between the general overall growth in the

economy and the investment rate. The investment rate (investment to GDP ratio) in India averaged

25% from 2000-01 to 2003-04. Between 2004-05 and 2012-13, the rate of investment averaged 35.4

per cent, reaching the peak of 38.1 per cent in 2007-08.

The rate of gross fixed capital formation, which accounts for the bulk of total investment, increased

significantly from 2004-05, peaked in 2007-08, and generally declined thereafter. As per the

provisional estimates for 2013-14 released by the CSO, the ratio of fixed capital formation to GDP in

2013-14 was 2.1 percentage points lower than in 2012-13.

Table 5: Contribution of investment to GDP in percentage terms (at current market prices)

Particulars 2000-01 to

2003-04 2004-05 to

2007-08 2008-09 to

2012-13 2012-13 2013-14



Particulars 2000-01 to

2003-04 2004-05 to

2007-08 2008-09 to

2012-13 2012-13 2013-14

Total Investment 25.0 35.3 35.5 34.8 35

Gross Fixed Capital Formation

24.0 30.8 31.4 30.4 28.3

Public Sector 6.7 7.6 7.9 7.8 NA

Private Corporate Sector 5.5 11.9 9.8 8.5

NA

Household Sector 11.8 11.3 13.7 14.1 NA

Source: CSO Release May 30, 2014, RBI, EAC to PM, Ministry of Finance; May 31, 2014, NA-Not Available

As can be seen from the previous table, the private sector (comprising private corporate sector and

household sector) is the major source of investment in the country. Increase in investment by the

private corporate sector explained the bulk of the increase in overall investment during the upswing

phase between 2004-05 and 2007-08.

3.2.1 Investment in infrastructure sector

3.2.1.1 Investment in infrastructure sector – Planning Commission estimates

Investments in the infrastructure sector in India over the period 2002-12 (10th & 11

th Five Year Plans)

were to the tune of INR 32.6 lakh crores. A comparison between the actual investments in

infrastructure during the 10th and 11

th Five Year Plans and the projected investments during the 12

th

Five Year Plan – as given by the Planning Commission – are given in the table below.

Table 6: Comparison of infrastructure investments across Five Year Plans – Planning Commission (INR crores)

Particulars 10th Five Year Plan (2002-07) - Actual

11th Five Year Plan (2007-12) - Actual

12th Five Year Plan (2012- 2017) Projected

GDP at market prices 1,65,98,847 3,36,04,450 6,81,63,208

Total investment 8,37,159 24,24,277 55,74,663

Total investment as percentage of GDP 5.04% 7.21% 8.18%

Public investment 6,51,136 15,36,773 28,90,823

Private corporate sector investment

1,86,023 8,87,504 26,83,840

Percentage share of private corporate sector investment in total investment

22% 37% 48%


The total investment in infrastructure, as a percentage of GDP, is projected to increase from around

5.08% during the 10th Five Year Plan to 8.18% by the end of 12

th Five Year Plan. Percentage share of



private investment in the total investment is projected to increase from 25% during the 10th Plan to

48% by the end of the 12th Plan.

The Union Budget 2014-15 has announced a slew of measures to boost infrastructure investments –

mainstreaming Public-Private Partnerships (PPPs) through the creation of 3P India, focusing on

increasing investments in infrastructure through various projects and increasing funding to the sector

amongst others; these measures are expected to boost the pace of growth in the infrastructure sector.

Overall spending on infrastructure is budgeted to rise 24% over last fiscal to INR 2.1 lakh crores.

While the budget provisions are positive, addressing on-the-ground issues like land acquisition,

environmental clearances, inflation, and uncertainties in regulations etc. is key to reinvigorate the

sector.

Keeping these teething issues in mind it is believed that the total investment in infrastructure as a

percentage of GDP might just fall short of the Planning Commission estimates for the 12th Plan period,

falling to an average of 7.3% of GDP for the same period. Contribution by private corporate sector in

the overall investment has been growing year on year. While a slowdown in investment was seen in

recent years, with the focus of the new government on increasing private sector participation it is

expected that their contribution to investments would increase further.

3.2.1.2 Outlook on investments in key infrastructure segments

In the following sub-section, details on investments in some of the key infrastructure segments are

provided.

3.2.1.2.1 Power/Electricity

The capacity-addition target for the 12th Plan period is estimated at 88,537 MW, comprising 26,182

MW in the central sector, 15,530 MW in the state sector, and 46,825 MW in the private sector. In

2012-13, a record capacity addition of 20,622.8 MW (20,121.8 MW in thermal and 501 MW in hydro)

was achieved, as against the set target of 17,956.3 MW. The capacity addition target for the year

2013-14 was 18,432.3 MW.

The government has also recently undertaken initiatives for augmenting power generation in India –

changes in the mega power policy for provisional mega power certified projects (February 2014),

allocation of new coal blocks to NTPC, Independent Coal Regulatory Bill, automatic approval for

foreign direct investment etc.

It is expected that another 37,000 MW of capacity will be added by 2017-18, out of which around 82%

will be based on coal. Private sector is expected account for around 54% of the capacity additions.

3.2.1.2.2 Roads

It is expected that roads and highways would see an investment of about INR 6.3 lakh crores between

2013-14 and 2017-18. Of this amount, the share of national highways would be 43%, followed by

state roads and rural roads at 30% and 27%, respectively.

Going forward, it is expected that the highway projects under the National Highways Development

Programme (NHDP) would pick up, with the main focus on Phase III, Phase IV and Phase V projects.

A total length of 21,787 km has been completed till March 2014 under various phases of the NHDP.

The Union Budget 2014-15 has announced the provision of INR 14,400 crores towards Pradhan

Mantri Gram Sadak Yojana Scheme and INR 37.900 crores for national highways and state roads.

Further, it has set aside INR 500 crores to initiate work on expressways.



3.2.1.2.3 Railways

The Indian Railways is currently working at close to 100% capacity utilization, highlighting the need to

augment its freight-carrying capacity in the near future. Keeping these constraints in mind, policies

have been developed to focus on the creation of additional capacity, modernization of the existing

network, improvement in asset utilization and productivity, and modernization of rolling stock and

maintenance practices to bring about overall improvement in the quality of railway services, while

augmenting profitability and internal resource generation. The 12th Five Year Plan envisages an

investment of over INR 5 lakh crores in Railways. It also envisages a larger role for PPP in projects

like high-speed rail corridors and direct freight corridors for effective project execution.

The Union Budget 2014-15 plans to introduce a bullet train on the Mumbai-Ahmedabad route and

create a diamond quadrilateral for high-speed trains. It further provides for permitting foreign direct

investment in railway projects.

3.2.1.2.4 Ports

Over INR 55,000 crores has been invested in the ports sector, in the last five years. More than 80% of

these investments are estimated to have been made by the private sector, majority towards non-major

ports, whereas public sector contribution in the investments has remained limited to maintenance of

draft and building of allied infrastructure like roads at major ports.

Going forward, it is expected that close to INR 60,000 crores will be invested in the ports sector in the

coming years. Based on the present status of ongoing/announced projects, it is likely that a higher

proportion of these investments would flow towards projects at major ports.

3.2.1.3 Debt requirement in infrastructure sector – Planning Commission estimates

For the 12th Five Year Plan, the Planning Commission has estimated an overall debt requirement of

INR 27.75 lakh crores in the infrastructure sector, based on the assumption that 50% of the total

investment requirements are likely to be met by debt sources. The year-wise split for projected debt

requirement is presented in the table below.

Table 7: Planning Commission estimates for private corporate sector debt requirement in the infrastructure sector during 12

th Five Year Plan (INR crores)

Particulars 2012-13 2013-14 2014-15 2015–16 2016–17 Total

Twelfth Plan

Total projected investment

7,51,012 8,87,454 10,61,316 12,85,573 15,89,308 55,74,663

Debt requirement for private corporate sector

2,05,318 2,63,723 3,38,413 4,47,172 6,03,923 18,58,549


3.2.1.4 CRIS projections for investment and debt requirement in infrastructure sector

3.2.1.4.1 Forecast for overall investment in infrastructure sectors

As previously mentioned it is estimated that the overall investment in infrastructure for the 12th Five

Year Plan might just fall short of the Planning Commission estimates, achieving an average of 7.2% of

GDP. Considering the positive steps taken by the new government, we have assumed that the



investments in infrastructure will grow in steps to average around 8.05% of GDP in the 10 years

between 2015-16 and 2024-25. This estimate is in line with the trends observed in emerging

economies such as Indonesia, South Africa, China and Mexico. As seen in following figure,

forecasted investments for developing countries are in the range of 7-8% in the short term.

Figure 5: Investment in Infrastructure (% of GDP) for other emerging economies

Source: Various

3.2.1.4.2 Contribution by private corporate sector in overall forecasted investment

In emerging economies such as South Africa and Indonesia, private sector contribution to the

infrastructure sector has escalated from 20-30% in the previous decade to over 50% currently. Private

investment in infrastructure in South Africa is currently over 60% while Indonesia is poised to witness

a 70% share in private investments in 2015.

A similar trend has been witnessed in developed countries, such as Canada, Australia, USA and

Britain, where public sector investment in infrastructure has gradually declined. Also, the role of

governments in infrastructure provision has generally shifted in the recent decades, with governments

reducing their role in economic management that was previously conducted through their ownership

of infrastructure. Currently, private infrastructure investment in the USA is five times larger than the

total non-defence government investment while in the UK, it contributes to over 80% of the total

infrastructure investments.

Hence, it is expected that a similar trend of rising private sector investments in infrastructure will be

observed in the Indian economy. This is further backed by an increasing focus of the new government

to involve private corporate sector in infrastructure investments through PPP initiatives. It is estimated

that their contribution will touch 54% in the 12th Five Year Plan. While it is expected that this figure

could be as high as 80% in the next 10 years, a more conservative estimate of 70% in the 10 years

between 2015-16 and 2024-25 has been considered in our analysis.

The remaining share in infrastructure investments has been allocated to public sector undertakings.

Total debt requirements of this sector have been estimated by removing the extent of budgetary

support in the form of grants. Budgetary support to the infrastructure sector has remained constant

over the past 3 five year plans, at 2.2%.

2.5

4

4 3.8

5

7

3 3.5

4.1 4.9

4.8 6.5

3 3

6.5 7

7.9 9

11.2

10 9.6 9 9.2

0

3

6

9

12

2000 2003 2007 2010 2013 2014-15F

Indonesia Mexico South Africa China



3.2.1.4.3 Forecast for debt requirement in infrastructure sector – adjusted for tenure and

rating

Considering the long-term nature of these investments it is estimated that they will be funded by long-

term debt – this is assumed at current levels of 70%4 of overall investments. Moreover, it is assumed

that 85%5 of this total debt requirement would pertain to entities rated less than AA category for the

private sector and 30%6 for the public sector.

Table 8: Forecast for investment and debt requirement in infrastructure sector (INR crores)

Particulars 2015-16 to 2019-2020 2020-21 to 2024-25

Total projected investment 71,45,297 137,50,732

(% of GDP) 7.70% 8.40%

Contribution by private corporate sector

48,35,005 96,25,512

(% of projected investment) 67% 70%

Contribution by PSUs 2,74,939 5,02,744

Debt requirement – Long term and by entities rated less than AA

29,34,565 58,32,756


3.2.2 Investment in non-infrastructure sector

Investments in the non-infrastructure sectors have grown at a CAGR of 18% in the last decade. The

manufacturing and business services segments (real estate) constitute dominate investments in the

non-infrastructure sector, constituting approximately 70% of the total investments.

Estimated investment in the non-infrastructure sectors over the 11th & 12

th Five Year Plans and its

split between the public and private sectors has been highlighted in the table below. The private

corporate sector has contributed 29% of investments during the 11th Five Year Plan. Following the

decline in overall investments due to the economic slowdown, this share is expected to fall to an

average of 25% in the 12th Five Year Plan.

Table 9: Investments in non-infrastructure sectors


12th Five Year Plan (2012- 2017) Estimated

4 Arrived at after Prowess analysis of outstanding liabilities of entities in the infrastructure sector

5 Arrived at after Prowess analysis of outstanding credit rating data





12th Five Year Plan (2012- 2017) Estimated

Total Investment 46,93,693 1,07,86,678

Public Investment 6,87,272 15,78,372

Private Corporate Sector Investment

13,62,532 27,21,235

Percentage share of private corporate investment in total investment

29% 25%

Source: Ministry of Statistics and Programme Implementation, Govt. of India, All figures in INR crores

3.2.2.1 Outlook on investments in non-infrastructure sectors

Going forward, it is expected that the manufacturing sector will continue to constitute for a majority of

total investments among non-infrastructure sectors.

3.2.2.1.1 Manufacturing

The manufacturing sector GDP declined by 0.7% in 2013-14 due to the deceleration in investment

particularly by the private corporate sector during 2011-12 and 2012-13, a trend that appears to be

following trends in overall investments. Several other domestic and external factors such as higher

interest, infrastructure bottlenecks, inflationary pressure leading to rising input costs, and drop in

domestic and exports demand, have together contributed to the recent slowdown in the

manufacturing sector. Hence, it seems highly unlikely that projected 12th Five Year Plan growth

targets of 10% for the manufacturing sector will be met in the near term.

However, the manufacturing sector has recently shown signs of recovery, with overall activity

expanding for the fifth consecutive month in March 2014 and the latest export figures being the

highest since April 2011. The HSBC India Manufacturing Purchasing Managers’ Index (PMI)

increased marginally from 51.3 in April to 51.4 in May, 2014. This further indicates some improvement

in manufacturing activities and domestic and exports orders.

Hence, with improvement expected in the overall macroeconomic and policy environment,

manufacturing industry is expected to revive and witness higher growth and investments in the next

two to five years.

3.2.2.1.2 Real estate

The growth of the real estate sector is reinforced by the massive growth expected in the Indian real

estate market, which is recognized as one of the fastest growing markets in the world. As per CII, the

market is expected to reach a size of approximately INR 1.5 lakh crores by 2020, from its current size

of INR 24,000 crores. This robust growth of the sector is a result of growing demand for retail and

office space along with residential properties, especially in the country’s seven major cities – Delhi-

NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad and Kolkata.

This sector is also supported by a favourable policy environment with a provision of 100% FDI and

ease in obtaining housing finance. Benefitting from the growth in the real estate market, ancillary real

estate services such as property management companies are poised for growth in the short and long

term.



3.2.2.2 CRIS projections for investment and debt requirement in non-infrastructure sectors

3.2.2.2.1 Forecast for total private corporate investment

As per our estimates, private corporate investment in both infrastructure and non-infrastructure

sectors has historically grown from 5.3% in 2002-03 to 10% currently. Following these trends, private

corporate investment is expected to increase in the future, given the limited investment ability of the

public sector due to the fiscal deficit target and an overall impetus to privatization in the economy.

Hence, private corporate gross fixed capital formation as a percentage of GDP is expected to rise by

another five percentage points over the next year, rising to 15% in 2025.

3.2.2.2.2 Forecast for total private corporate investment in the non-infrastructure sector

The estimates for private corporate investment in the non-infrastructure sector have been arrived at

by calculating the balancing figure for overall private corporate investment. It has been assumed that

the balance of private corporate investments to infrastructure sector will be invested in the non-

infrastructure sector.

3.2.2.2.3 Forecast for debt requirement in infrastructure sector – adjusted for tenure and

rating

It is expected that these investments for fixed capital formation will be funded by long-term debt – this

is assumed at current levels of 60%7 of overall investments. Moreover, it is assumed that 52%

8 of this

total debt requirement would pertain to entities rated less than AA category in the private sector and

15%9 in the public sector.

Table 10: Estimated Private Debt Requirement in non-infrastructure sector


Investment by Private Corporate Sector 61,94,593 132,87,733

Investment by PSUs 25,63,457 53,69,724

Debt requirement – Long term and by entities rated less than AA

21,63,424 46,29,048


7 Arrived at after Prowess analysis of outstanding liabilities of entities in the non-infrastructure sector





4. Financial Sector in India and Debt Supply

4.1 Overview of the Indian financial sector

India has one of the better financial market systems in the world. The World Economic Forum’s Global

Competitiveness Report 2013-14 ranks India 45th out of 128 countries in availability of financial

services and 38th in both ease of access to loans and affordability of financial services, outperforming

most of its peers in the BRICS quintet such as Brazil, China, and Russia.

However, there exists a lack of long-term finance for long gestation products, especially physical

infrastructure, which forces commercial banks to excessively stretch their asset–liability mismatch

since they mostly hold short-term liabilities. This is a unique model when compared to other countries

where such long-term infrastructure finance is driven by the development finance institutions or more

pertinently, the corporate bond market.

Figure 6: Mode of financing of infrastructure investments


The bond market in India is very small in comparison to not only developed markets, but also some of

the emerging market economies in Asia such as Malaysia, Thailand and Singapore. As seen in the

following graph outstanding corporate bonds are close to 125% of GDP in US where the corporate

debt market is most developed; around 78% in Hong Kong and close to 20% in Thailand. In

comparison, size of outstanding corporate bonds as a percentage of GDP in India is around 15%.



Figure 7: Corporate bonds outstanding as a percentage of GDP, 2013 – Replaced China with Thailand

Source: Deutsche Bank Research, World Bank, Prime Database. *Data is for 2013-14

4.2 Sources of debt financing and estimation of debt supply

As mentioned earlier, historically, debt financing in India has been the stronghold of commercial

banks. Other key sources of debt financing are NBFCs, ECBs, bond investors such as insurance

companies, mutual funds, pension funds and provident funds amongst others. This section elucidates

the debt supply characteristics of each of these sources, and their historical contribution and likely

contribution to both infrastructure and non-infrastructure sectors in the future.

4.2.1 Banks

Figure 8: Methodology adopted for estimating debt supply from banks


Banks as financial intermediaries collect deposits from public and channel these deposits into lending

activities. Historically, bank credit has constituted a significant portion of the total debt supply to

infrastructure and non-infrastructure sectors. Outstanding non-food credit disbursed by banks has

grown at a CAGR of 22.9% over the past decade; however, in the backdrop of general economic

slowdown, the sector has witnessed a slowdown in recent years.

20%

78%

47%

126%

15%

Thailand Hong Kong Singapore USA India



Sectoral deployment of credit by all commercial banks in India for the past four years is presented in

the table below.

Table 11: Outstanding credit by scheduled commercial banks in India (INR crores)

Particulars 2010-11 2011-12 2012-13 2013-14 Average

Share (%)

Non-food bank credit

36,87,087 43,71,400 49,64,200 55,66,008 100%

Agriculture 4,83,466 5,48,400 5,89,900 6,69,438 12%

Industry 16,13,184 19,37,400 22,30,200 25,22,876 45%

Of which infrastructure

5,21,400 6,29,990 7,29,721 8,39,780 15%

Services 8,90,781 10,16,600 11,48,600 13,37,033 24%

Personal loans 6,99,657 7,87,300 9,00,900 10,36,661 18%

Source: RBI

Sectoral shares in the credit flow have generally remained stable with the industry being the dominant

sector accounting for around 45 per cent of the total credit disbursed by the banks.

4.2.1.1 Sectoral deployment of credit to infrastructure sector

Historically, banks have accounted for the largest share of infrastructure investments. However, with

the recent slump in economic growth and rising issues in the infrastructure sector, growth of bank

credit to the infrastructure sector has slowed down. Incremental bank credit to infrastructure as a

percentage of incremental overall bank credit to infrastructure has decreased from 25% in 2011-12 to

18% currently. As seen in the following table, incremental credit to the infrastructure sector witnessed

a slight decline in 2011-12.

Table 12: Incremental flow of bank credit to infrastructure (INR crores)

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Overall Infrastructure 64,658 1,09,895 1,41,513 1,08,591 99,730 1,10,059

Power 29,380 63,394 81,355 63,507 84,923 72,497

Roads 12,530 26,509 19,000 19,998 20,371 26,087

Telecom 12,283 9,036 41,106 325 -6,230 2,628

Others 10,679 10,956 5,307 22,748 667 8,846

Source: RBI

Banks have witnessed a particularly high increase in non-performing (NPAs) for infrastructure sector

with NPAs as a percentage of credit advanced increasing from 3.23% as of March 2011 to 8.22% as



of March 2014. As of March 31, 2014, banks had restructured INR 50,239 crores of infrastructure

loans – 21% of the total loans recast in the last fiscal year under the corporate debt restructuring

(CDR) mechanism.

4.2.1.2 Sectoral deployment of credit to non-infrastructure sector

As is the case of the infrastructure sector, banks have historically provided majority of total credit to

the non-infrastructure sector. Incremental non-food gross credit to non-infrastructure sectors has

increased at a CAGR of 14% in the past decade.

The manufacturing sector and it sub-segments constitute a major portion of credit flow in the non-

infrastructure sector. In view of the ongoing industrial slow down, various segments of this sector have

witnessed moderation in credit flow from banks in the recent years. The outstanding credit to

manufacturing sector and its sub-segments is provided in the table below.

Table 13: Outstanding bank credit to non-infrastructure sector (INR crores)

Industry 2009-10 2010-11 2011-12 2012-13 2013-14

Food Processing 76,646 90,622 1,09,200 1,33,879 1,66,577

Textiles 1,21,375 1,46,103 1,59,414 1,83,536 2,03,998

Wood, Paper, Leather Products 29,677 33,657 38,758 44,609 52,756

Petroleum, Coal Products & Nuclear Fuels 78,579 50,990 61,175 64,327 63,488

Chemicals & Chemical Products 85,713 1,08,852 1,26,993 1,59,244 1,67,670

Rubber, Plastic & their Products 15,617 25,908 29,904 31,217 36,822

Glass & Glassware 4,831 5,478 6,269 7,448 8,711

Cement & Cement Products 24,722 29,615 36,910 45,858 54,116

Basic Metal & Metal Product 1,62,929 2,14,448 2,61,809 3,14,116 3,61,969

All Engineering 73,821 93,322 1,13,010 1,28,447 1,45,573

Vehicles, Vehicle Parts & Transport Equipment 38,780 45,793 51,781 58,863 67,738

Gems & Jewellery 31,751 40,012 51,326 61,144 71,968

Other Industries 1,24,821 1,36,046 1,79,724 1,80,968 1,84,970

Industries Total 8,69,262 10,20,846 12,26,273 14,13,656 15,86,356

Year on Year Growth 17% 20% 15% 12%

Source: RBI

As seen in the table, individual sector-level credit absorption in petroleum, chemicals and chemical

products, basic metals, transport, and all engineering sectors showed lower growth in gross bank

credit flow during 2012-14 as compared to the previous years, mainly due to the slowdown in these

sectors.



4.2.1.3 Challenges faced by banks

4.2.1.3.1 Increasing stressed assets

Asset quality in the banking system has deteriorated in the post-crisis years with the growth in

stressed assets outpacing credit growth in the banking system in recent years. In 2013 itself, growth

in stressed assets increased by 40.2% against a credit growth of 15.1%. Amongst banks groups,

public sector banks (PSBs) had the highest level of stress in terms of NPAs and restructured

advances (RAs).

Figure 9: Banking sector GNPA and RA (%)

Source: ASSOCHAM India, PwC India – Growing NPAs in banks

RBI in its Financial Stability Report, June 2014 has identified five sectors—infrastructure, iron and

steel, textiles, aviation, and mining—as the stressed sectors. The share of these five stressed sub-

sectors to the total advances of SCBs is around 24%.

PSBs have high exposures to the industry sector in general and to such stressed sectors in particular.

Increase in NPAs of banks is mainly accounted for by switchover to system-based identification of

NPAs by PSBs, slowdown of economic growth, and aggressive lending by banks in the past,

especially during times of high growth.

4.2.1.3.2 Asset-Liability mismatches

Growing divergence in the tenors of loans and deposits has resulted in rising asset-liability

mismatches in the Indian banking system. Majority of the funds with Indian banks are savings bank

deposits and term deposits, essentially short term, with tenures of six months to five years. These

deposits are increasingly being used to finance long-term lending, having tenures of 10 to 15 years.

Also, as per RBI data, it is seen that banks, especially those in the public sector, have experienced a

shift in their deposits towards the shorter end of the maturity spectrum, while loans and investments

have moved towards the longer term. Deposits maturing within one year for government banks

increased to almost 50% of the total deposits in 2014, up from 33% in 2002 while the cumulative gap

to fund one-year deposits increased to 15.7% of assets at end-March 2014 from below 4% in 2002.

This gap increases the likelihood of a liquidity risk wherein there exists a shortage of ready collateral

that could be used to repo with RBI in case of a liquidity squeeze.

6.7 5.8

7.6

9.2

10.2

2.5 2.4 2.9

3.4 4.2

1.1 1.1 1.4 1.7 2.2

0

2

4

6

8

10

12

2008-09 2009-10 2010-11 2011-12 2012-13

GNPA + RA% GNPA% NNPA%



For many government banks, funding gaps are unsustainable in the long term since long-term loan

products are likely to maintain their share in banks’ loan portfolios, particularly as an economic revival

may require continued bank funding for longer tenor loans, especially in the infrastructure sector.

With this background, RBI recently issued guidelines10

to banks specifying operational norms for

flexible structuring and refinancing of new project loans for the infrastructure sector as well as allowing

banks to issue long-term infrastructure bonds. Key aspects of these guidelines include the following:

No CRR/SLR requirement on the issue of such bonds. Also exemption from priority sector

lending targets.

Bonds to be denominated in INR with a minimum maturity of seven years.

Around 16% of the existing book (less amortization during FY 2015) as well as incremental

disbursements to long-term projects in infrastructure sub-sectors and affordable housing

eligible to be funded out of these bonds.

Bonds may be issued with fixed/floating rate of interest.

Raising such long-term resources is expected to help banks address their asset-liability mismatches.

4.2.1.3.3 Sectoral exposure

There is a significant dependence on the bank loan market for funding the infrastructure sector. The

infrastructure portfolio of banks has been the fastest growing segment (31.2% CAGR from 2006-07 to

2012-13) and its share to total loans is the highest across all sectors. Infrastructure bank loans as a

percentage of total bank loans have increased from 9% in 2007-08 to 15% in 2012-13.

Though RBI does not mandate a sectoral exposure limit, banks tend to fix their internal exposure

limits so that exposures are evenly spread across sectors and the risk of over-exposure to a single

sector is minimized. Banks typically have an internal sectoral exposure limit of around 15%. As can be

seen from the table below, the banking system has reached this limit for the infrastructure sector.

Table 14: Overall and incremental credit by scheduled commercial banks

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Bank credit-Overall (A)

22,04,802 26,01,823 30,40,007 36,67,354 42,89,744 48,69,600

Bank credit-Infrastructure (B)

2,05,334 2,69,992 3,79,887 5,21,400 6,30,000 7,29,700

% of infrastructure lending (B/A)

9.3% 10.4% 12.5% 14.2% 14.7% 15.0%

Incremental bank credit-Overall (C)

4,09,444 3,97,021 4,38,184 6,27,347 6,22,390 5,79,856

Incremental bank credit-

62,346 64,658 1,09,895 1,41,513 1,08,600 99,700

10

RBI/2014-15/127 – Issue of long term bonds by banks – Financing of infrastructure and affordable housing



Particulars 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Infrastructure (D)

% of incremental lending to infrastructure sector (D/C)

15.2% 16.3% 25.1% 22.6% 17.4% 17.2%

Source: RBI

4.2.1.3.4 Group exposure

In addition to sectoral limits, banks also face the risk of reaching limits pertaining to group exposure.

RBI mandates the exposure ceiling limit at 40% of the capital funds in case of a borrower group. This

figure can go up by another 10% in case additional exposure is on account of extension of credit to

infrastructure projects. A further 5% exposure (for a total exposure of 55%) is allowed subject to the

borrower consenting to the banks making appropriate disclosures in their annual reports. The capital

funds for the purpose comprise Tier-I and Tier-II capital as defined under capital adequacy standards.

The following figure shows the exposure of the banking system to some of the large business groups,

as on March 2014. Though it is not evident whether the banking system as a whole is reaching its

group exposure limits or not, there’s a possibility that individual banks, with which such groups foster

long-term relationships, face the risk of reaching such limits. In such a scenario, these groups would

experience challenges in obtaining bank funding and would welcome viable alternative sources of

funding.

Figure 10: Exposure of the banking system to some of the large business groups (INR ‘000 crores)

Source: Annual reports, *Tata Group exposure as in 2010

32

11.4 10.2

16.7

0

5

10

15

20

25

30

35

Reliance Industries Essar Group Jaypee Group Tata Group*



4.2.1.4 CRIS projections for debt supply by banks

4.2.1.4.1 Infrastructure sector

Banks are expected to benefit from the recent guidelines issued by RBI allowing banks to issue long-

term bonds to finance infrastructure and affordable housing. Interactions with stakeholders reveal that

this initiative would help banks decrease their effective cost of borrowing by 50-120 bps thereby

translating into a pricing advantage. While this is assumed to increase the overall flow of bank credit

to infrastructure sector, as well as augment the existing supply of high rated bonds in the market, this

initiative will not help solve the underlying issues of the bond market.

For estimating debt supply to the infrastructure, we expect gross bank credit to infrastructure as a

percentage of the overall non-food bank credit to increase steadily from the current 15% to 20% in the

next 10 years; while the overall gross non-food bank credit grows at a CAGR of around 16%. As per

RBI data, 28% of the total outstanding debt is long-term in nature or greater than 3 years. While

information specific to infrastructure is not published, interactions with stakeholders reveal that this

figure could be higher by 5 percentage points for infrastructure. We have therefore assumed 33% of

the total debt in infrastructure to be long-term in nature. With the likelihood of high dependency on

banks for long-term loans to continue due to the economic revival, this share is unlikely to reduce in

the future.

A further analysis of credit ratings of companies operating in the infrastructure space revealed that

38% (by value) of the total long-term bank borrowings are rated below the AA grade. This ratio has

also been assumed to remain constant in the future. This is a conservative assumption since most of

the highly rated issuers would already be having access to bank loans and the increase in the

borrower base of banks in future is predominantly expected to be from relatively lower rated entities.

The following table provides our estimates for long-term debt supply to the infrastructure sector (for

credit ratings less than AA) from banks.

Table 15: Forecast of debt supply from banks to infrastructure sector (INR crores)


Gross credit 88,54,421 2,14,17,328

Gross credit – Long term and for entities rated less than AA

11,10,344 26,85,733

Incremental credit – Long term and for entities rated less than AA

1,79,864 4,33,445


4.2.1.4.2 Non-infrastructure sector

The Union Budget 2014-15 has announced steps such as extended excise duty cuts in auto, and a

thrust to expansion of labour intensive sectors such as textiles, tourism, food processing, and small

and medium enterprises; the manufacturing sector is expected to revive in the medium term.

In order to estimate the supply of debt to non-infrastructure sectors in the future, credit inflow to the

infrastructure sector along with credit disbursed to personal loans historically has been removed from

forecasted total non-food gross credit. Further, based on historical data pertaining to long term loans

in the non-infrastructure sector, it has been calculated that 28% of total loans disbursed to this sector



are of a maturity greater than three years. Since characteristics of debt required within the sub-sectors

of the non-infrastructure segment vary greatly, this share has been assumed to remain constant

throughout the duration of the forecast.

A detailed analysis of credit ratings of companies operating in the manufacturing and services sector

revealed that approximately 47% (by value) of the long term instruments are rated below AA grade.

Based on the assumption that this share will continue to hold going forward, we have estimated a total

debt supply to the non-infrastructure sector.

Table 16: Forecast of debt supply from banks to non-infrastructure sector (INR crores)


Gross credit 266,94,532 564,60,306

Gross credit – Long term and for entities rated less than AA

7,02,600 74,30,176

Incremental credit – Long term and for entities rated less than AA

4,87,091 10,34,419


4.2.2 Non-banking finance companies (NBFCs)

Figure 11: Methodology adopted for estimating debt supply from NBFCs


NBFCs as a whole accounted for 13% of financial assets as on March 31, 2013. With the growing

importance assigned to financial inclusion, NBFCs have been regarded as important financial

intermediaries particularly for the small-scale and retail sectors. The following table depicts total loans

and advances by two broad categories of NBFCs, namely deposit taking NBFCs (NBFC-D) and non-

deposit taking NBFCs (NBFC-ND).

Table 17: Loans and advances by NBFCs (INR crores)

Total Loans & Advances

2009-10 2010-11 2011-12 2012-13

NBFC-D 71,119 77,901 84,100 91,800




2009-10 2010-11 2011-12 2012-13

NBFC-ND-SI* 3,48,517 4,58,173 6,14,300 7,49,700

Total 4,19,636 5,36,074 6,98,400 8,41,500

Incremental 75,070 1,16,438 1,62,326 1,43,100

*-Total credit from NBFC-ND is believed to be minimal. Source: RBI

4.2.2.1 Deployment of credit to infrastructure sector

NBFCs focused on infrastructure or Infrastructure Finance Companies (NBFC-IFCs) form an

important source of infrastructure debt financing. The table below gives the summary of loans and

advances to the infrastructure sector by a few leading NBFC-IFCs.

Table 18: Loans and advances by NBFC-IFCs (INR crores)


2009-10 2010-11 2011-12 2012-13

Power Finance Corporation Ltd. (PFC)

80,178 1,00,054 1,30,372 1,60,623

Rural Electrification Corporation Ltd. (REC)

66,089 81,744 1,01,412 1,27,208

Infrastructure Development Finance Company Ltd. (IDFC)

21,008 25,098 37,780 47,785

Industrial Finance Corporation of India (IFCI)

9,488 12,064 16,513 15,524

SREI Infrastructure Finance Ltd.

1,198 3,565 4,988 8,828

L&T Infrastructure Finance Company Ltd.

2,260 4,261 6,578 9,957

Tata Capital Limited 2,157 2,859 4,273 5,830

Total 1,60,926 2,08,274 2,71,601 3,45,863

Incremental 30,101 47,348 63,328 74,262

Source: Annual Reports

The NBFC-IFCs have funded INR 5.5 lakh crores of infrastructure loans as of December 31, 2013 and

are expected to contribute another INR 3.1 lakh crores over the 12th Plan during FY14-17. However,

current challenges in the operating environment have partly reduced the risk appetite of such NBFC-

IFCs. While lack of long term funds was always a challenge for NBFC-IFCs (barring public sector



NBFC-IFCs), large level of vulnerable accounts, increase in interest costs as well as rupee

depreciation pose additional challenges for NBFC-IFCs.

4.2.2.2 Deployment of credit to non-infrastructure sector

NBFC-IFCs are also present in construction equipment finance. They have gained market share at

the expense of banks through focused lending, higher penetration and increased resource raising

ability.

4.2.2.3 Challenges faced by NBFCs

Asset Quality of NBFC-IFCs

Similar to banks, gross NPAs of NBFC-IFCs witnessed a rising trend, increasing to 1.7% as of

December 2013, from 1.5% as of March 2013. Further, the underlying stress on the infrastructure

loans portfolio was clearly evident from the fact that the NBFC-IFCs’ restructured loans as a

proportion of advances stood at 17% as of March 2013. Within NBFC-IFCs, restructuring of two state

electricity boards (SEBs) across PFC and REC accounted for about 3/4th of the total restructured book

of the NBFC-IFCs.

However, it is expected that certain policy level changes in the recent past such as restructuring of

short-term liabilities of state distribution companies (discoms), pass through of imported coal cost in

case of domestic coal based power projects and deferment of premium payable to NHAI in case of

road projects could improve the liquidity profile of some players active in the segment and in turn

could reduce portfolio vulnerability for the NBFC-IFCs.

4.2.2.4 CRIS projections for debt supply by NBFCs


NBFC-IFCs will continue to remain a major source of financing to the infrastructure sector. However, it

is to be noted that IDFC, one of the largest private sector NBFC-IFCs has been recently awarded a

bank license. Interactions reveal that it is expected to commence its banking operations in 18 months.

Moreover, growth of credit by NBFC-IFCs will be dependent on its continued access to bank

finance/long-term funds and resolution of issues in the infrastructure sector, in general.

Based on secondary research and interactions, it is assumed that incremental credit by NBFC-IFCs

will grow between 16-20%; of which 70% is assumed to be long-term in nature. Prowess analysis

reveals that 80% of this long-term debt is extended to entities with credit rating less than AA. Based

on these assumptions, debt supply to the infrastructure sector has been estimated.

Table 19: Forecast of debt supply from NBFC-IFCs to infrastructure sector (INR crores)


Gross credit 49,93,248 1,15,63,757

Incremental – Long term and for entities rated less than AA

3,37,373 7,17,677




It is likely that credit to the non-infrastructure sector will be extended by NBFC-IFCs. RBI guidelines

for NBFC-IFCs mandate a minimum of 75% of total assets to be invested in the infrastructure sector.

The remaining 25% can be invested in the non-infrastructure sector. An analysis of current financials

of NBFC-IFCs revealed that on an average, 75% of total assets of these NBFCs is invested in the

infrastructure sector, while the remaining pertains to long term loans of the non-infrastructure sector.

Incremental estimates have been provided in table 9 below.

In case of other NBFCs which are not NBFC-IFCs, their exposure to the private corporate sector is at

a minimum. Moreover, the tenure of such credit is typically less than 3 years. Therefore they have not

been considered in the analysis.

Table 9: Forecast of debt supply from NBFC-IFCs to non-infrastructure sector (INR crores)


Gross credit to non-infrastructure

sector 12,48,312 28,90,939

Incremental – Long term and for

entities rated less than AA to non-

infrastructure sector by NBFC-IFCs

98,400 2,09,322

Source: CRIS Analysis

4.2.3 External commercial borrowings (ECBs)

Figure 12: Methodology adopted for estimating debt supply from ECBs


In recent times, the government has undertaken several initiatives to encourage ECBs to finance both

infrastructure and non-infrastructure sectors. The important steps taken to liberalize the ECB policy

include:

Relaxing ECB norms for firms in manufacturing, hospitals, infrastructure, hotels, and software

sector to raise foreign capital from foreign/indirect equity holders without RBI’s approval.



Enhancing the limit for refinancing INR loans through ECBs from 25% to 40% for Indian

companies in the power sector

Allowing ECB for capital expenditure on the maintenance and operation of toll systems for

roads and highways so long as they are a part of the original project subject to certain

conditions, and also for low cost housing projects.

Reducing the withholding tax from 20% to 5% for a period of three years (July 2012- June

2015) on interest payments on ECBs

Introducing a new ECB scheme of USD 10 billion for companies in the manufacturing and

infrastructure sectors

Permitting the Small Industries Development Bank of India (SIDBI) as an eligible borrower for

accessing ECB for on-lending to the MSME sector subject to certain conditions

Permitting the National Housing Bank (NHB)/ housing finance companies to avail themselves

of ECBs for financing prospective owners of low cost / affordable housing units

In light of the boosts provided to ECBs, the overall inflow has increased at a CAGR of over 23.6% in

the past 5 years. The following table depicts the total inflow of ECBs during this period.

Table 20: Total ECB Inflow (INR crores)

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13

Gross inflow 2,87,320 3,32,412 4,02,579 5,02,972 6,70,956

Incremental - 45,091 70,167 1,00,393 1,67,983

Source: RBI

4.2.3.1 Flow of ECBs to infrastructure sector

ECBs have traditionally not been a significant source of funding. However since 2010-11, IFCs are

permitted to source funds through ECBs under the automatic route. As per the data available with

RBI, the table below gives the flow of ECBs to infrastructure in the past few years.

Table 21: Flow of ECBs to infrastructure sector (INR crores)

Particulars 2009-10 2010-11 2011-12 2012-13

Incremental 25,937 25,258 25,258 46,799

Source: RBI

4.2.3.2 Flow of ECBs to non-infrastructure sector

Similar to ECB inflow to the infrastructure sector, historical trends in ECB inflow to non-infrastructure

sectors has displayed an arbitrary trend.

The table below gives the details of some of the companies in the non-infrastructure sector that have

borrowed overseas in the first three months of the calendar year 2014.

Table 22: Data for ECBs to non-infrastructure sector for the period January-April 2014

Borrower Amount (USD) Sector



Borrower Amount (USD) Sector

Pran Beverages (India) Private Limited

4,000,000 Food & Beverages

Parag Milk Foods Private Limited

4,530,000 Food & Beverages

Honda Cars India Limited 20,000,000 Automobile Manufacturing

General Motors India Private Limited

244,498,778 Automobile Manufacturing

Ford India Private Limited 113,756,890 Automobile Manufacturing

Aurobindo Pharma Limited 30,000,000 Pharmaceuticals

Source: RBI

4.2.3.3 CRIS projections for debt supply through ECBs


With recent changes made in the policy regime relaxing norms for ECB to the infrastructure sector, it

is likely that ECB inflow will form an important component of debt funding to the sector in the future.

For the purpose of forecast, it has been assumed that the total inflow of ECBs will continue to grow as

it has been in the past decade, at a CAGR of 16% in the long term. Inflow to the infrastructure sector

is assumed to continue at a historical median of 20% of the overall ECB inflow.

Historical analysis reveals that 93% of these borrowings are long term in nature. This is assumed to

be the case going forward. Also, it is assumed that 58% of ECBs would be raised by entities rated

less than AA11

. Based on these assumptions a total debt supply through ECBs is arrived at.

Table 23: Forecast of debt supply through ECBs to infrastructure sector (INR crores)



2,78,615 5,78,112



Going forward, it is expected that out of the total ECB inflow in the economy, the remainder after ECB

inflow to the infrastructure sector will flow into the non-infrastructure sectors. Also, it is assumed that

34%12

of ECBs would be raised by entities rated less than AA.

11

Prowess analysis of all entities in infrastructure sector 12

Prowess analysis of all entities in non-infrastructure sector



Table 24: Forecast of debt supply through ECBs to non-infrastructure sector (INR crores)



3,91,282 8,09,931


4.2.4 Insurance sector

Figure 13: Methodology adopted for estimating debt supply from insurance companies


Since the liberalization of the insurance sector in 2000, the number of participants in the industry has

gone up from 7 insurers (including the Life Insurance Corporation of India [LIC]), 4 public-sector

general insurers, 1 specialized insurer, and the General Insurance Corporation (GIC) as the national

re-insurer in 2000, to 53 insurers as on March 31, 2014 operating in the life, non-life, and re-insurance

segments.

The Union Budget 2014-15 has proposed to increase the foreign direct investment limit to 49% from

the current level of 26% in the insurance sector. This is expected to give a boost to the insurance

industry by bringing in more foreign capital thus helping companies expand their operations at a rapid

pace. With new guidelines for the life insurance segments issued in January 2014, as many as 500

new insurance schemes are lined up to hit the market in 2014-15.

The total accumulated assets under management of the insurance sector have increased at a CAGR

of 19.5% between 2004-05 and 2012-13, with the life insurance segment contributing the majority

(over 90% incrementally). As on March 31, 2013, this amount was over INR 18 lakh crores. However,

the insurance sector being essentially risk-averse in nature from an investment perspective, a

significant proportion of this AUM has historically been invested in central and state government

securities, the share being 57% and 40% in the life and non-life segments respectively.

Insurance companies with their large corpus of long-term funds are an ideal source of funds for the

infrastructure sector. However in India, this segment has not played a significant role in financing

infrastructure projects.

In terms of the infrastructure sector investments made by insurance companies (both life and non-

life), at the end of 2013, LIC had the largest share at around 76%. The following table highlights the

investments made by the insurance companies in the infrastructure sector over the last few years.



Table 25: Incremental flow of credit from insurance companies into infrastructure sector (INR crores)

Particulars 2009-10 2010-11 2011-12 2012-13

LIC 16,925 1,500 4,041 17,467

Other Life Insurers

2,075 2,005 4,098 4,090

Non-Life Insurers 1,393 1,842 259 3,428

Total 20,394 5,349 8,398 24,986

Source: IRDA Annual Reports

4.2.4.1 Challenges faced by the insurance sector

As per the norms set by the Insurance Regulatory and Development Authority (IRDA), insurance

funds are mandated to invest a minimum of 15% of their controlled fund in the infrastructure sector in

projects with a minimum rating of AA.

However, it is seen that most insurance funds (especially ones pertaining to life insurance) are unable

to adhere to this limit due to non-availability of sufficiently rated projects for their investments. This is

primarily due to the fact that infrastructure projects typically get a low credit rating at the inception.

The following table gives the comparison between the mandated level of investments and the actual

investments in the infrastructure sector, by insurance funds, across the years.

Table 26: Investments in infrastructure sector by life insurance companies (INR crores)

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13

Life Insurance – Controlled Fund

6,29,650 7,31,290 8,32,074 9,74,620 11,19,999

Mandated limit of investment in infrastructure (not less than 15% of controlled fund)

94,447 1,09,693 1,24,811 1,46,193 1,68,000

Actual Investment in Infrastructure

66,673 85,674 89,180 97,319 1,18,877

Source: IRDA Annual Reports

As can be seen from the above table, investments by public life insurance companies, especially LIC

(which has the largest controlled fund amongst all insurance companies) in the infrastructure sector is

much lesser than the mandated limits thereby depicting potential to tap these funds for the

infrastructure sector.



4.2.4.2 CRIS projections for debt supply from the insurance sector

Given the promising growth prospects of the insurance industry, the premium as a percentage of GDP

is expected to grow from 3.9% currently, to close to 10% in 2025. This robust growth is backed by the

significant rise in the young working population of the country, wherein a large portion currently

remains uninsured, especially in Tier 2 and Tier 3 cities.

The Planning Commission has estimated that total assets under management of the insurance sector

in India are likely to grow at an annual rate of 5%. The share of incremental premium that is invested -

assets under management is currently 43% and is expected to grow to a maximum share of 75% in

the next decade. Further, in line with current trends, it is expected that a majority of this investment

(93%) will be sourced from the Life insurance sector, of which 6% will be invested in the infrastructure

sector. Currently, the non-life segment, also invests close to 6% in the infrastructure sector.


An analysis of public disclosures released by major players in the life insurance sector revealed that

43% of investments are in non-government securities. Of the total infrastructure investments by life

insurance companies, 81% are investment in debt securities (83% of which are long term and in 10%

of entities which are rated less than AA). Similarly, of the total infrastructure investments of non-life

sector, 95% is invested in debt securities, of which 49% are long term in nature and another 9% are in

investments rated below AA.

Assuming the current trends to follow, the debt supply from insurance companies to infrastructure

sector is given in the following table.

Table 27: Forecast of debt supply from insurance companies to infrastructure sector (INR crores)



14,095 41,982



Similarly for investments by life insurance companies in non-infrastructure sector, 51% are investment

in debt securities (83% of which are long term and in 10% of entities which are rated less than AA).

The non-life segment invests 60% of its AUM in non-government securities, out of which 20% is

invested in the debt for the non-infrastructure segment. (49% of which are long term and 9% are

invested in entities rated below AA).

Considering the current trends to follow, debt supply from insurance companies to non-infrastructure

sector is given in the following table.

Table 28: Forecast of debt supply from insurance companies to non-infrastructure sector (INR crores)


Incremental – Long term 52,113 1,55,222




and for entities rated less than AA


4.2.5 Other suppliers of debt

4.2.5.1 Employees' Provident Fund Organization (EPFO)

The current retirement funds corpus in India consists of the Employees’ Provident Fund Organisation

(EPFO), the National Pension System (NPS), private pension funds and the public provident fund.

Within this corpus, EPFO accounts for the largest share – over 45% in 2013. The total corpus under

EPFO has grown at a CAGR of 18% historically in the last decade.

Table 29: EPFO corpus (INR crores)

Particulars 2009-10 2010-11 2011-12 2012-13

Provident Fund 1,68,281 2,01,064 2,37, 324 2,77,649

Pension Fund 1,23,790 1,42,050 1,61,780 1,83,405

Unit-Linked Insurance Fund

8,588 9,604 10,770 12,090

Total 3,00,659 3,52,718 4,09,874 4,73,145

Source: EPFO Annual Reports

Currently, four portfolio managers manage the funds independently for the EPFO under portfolio

management services (PMS), in accordance with the investment pattern specified by the Ministry of

Labour & Employment and the guidelines issued by the Central Board of Trustees, EPFO from time to

time. The following table gives the details of the allocation of funds amongst these portfolio managers.

Table 30: EPFO portfolio managers

Fund Manager Fund allocation (%)

State Bank of India 35%

ICICI Securities Primary Dealership Ltd 25%

HSBC Asset Management Limited 20%

Reliance Capital Asset Management Limited 20%

Source: EPFO

In line with the investment guidelines notified by the Ministry of Labour & Employment13

, over 40% of

the total investments by EPFO have been undertaken in central and state government securities.

While the investment guidelines allow investment upto 55% of the corpus in investment grade (BBB

and above) debt securities/bonds issued by corporate entities, in practice negligible investment has

13

Notification dated November 21, 2013



been undertaken in long-term corporate bonds with less than AA grade, as seen in table 31. This is

because of the following reasons/internal guidelines

Limited exposure allowance to lower rated issuances

Exposure to private sector maintained at less than 10%

Exposure linked to net worth of issuing entity

Hence, even though it is expected that the EPFO corpus will continue to grow, it is highly unlikely that

there will be any significant investment in long-term corporate bonds (rated less than AA).

Table 31: Corporate Bonds Investment Pattern – EPFO (INR crores as of September 2013)

Credit Rating EPFO – Provident

Fund EPFO – Pension Fund EPFO – Insurance

AA ( AA & AA+) 15,494 4,391 226

AAA (AAA & AAA(SO) ) 74,893 41,703 2,050

FD & Others 16,509 6,067 336

Total – Corporate Bonds 1,06,896 52,161 2,611

Source: EPFO

Similar to the investment pattern of EPFO, other pension funds refrain from investments in less than

AA rated bonds. The NPS and its investment pattern have been discussed below.

4.2.5.2 National Pension System (NPS)

The NPS is a defined-contribution-based pension system launched by the Government of

India/PFRDA with effect from January 1, 2004. Since April 1, 2008, the pension contributions of

Central Government employees covered by the NPS are being invested by eight professional pension

fund managers in line with the investment guidelines of the government applicable to non-government

provident funds set by PFRDA. The total corpus size under NPS is estimated to be around INR

50,000 crores currently.

Analysis of funds held by each of the eight fund managers and their associated investments reveal

that less than 4% of investments are undertaken in instruments holding a less than AA grade.

Table 32: Corpus size and investment pattern – NPS (INR crores)

Fund Manager Corpus Size Investment in AA or above

rated instruments

UTI -November 13 4,759.36 4,628.66

SBI - May 14 7,018.86 6,828.87

LIC Pension Fund - May 14 4,689.74 4,444.66

Reliance Pension Fund - June 14 12.01 12.01

Kotak Pension Fund - June 14 12.51 12.51

ICICI Pension Fund - June 14 61.29 61.29

HDFC Pension Fund June - 14 2.62 2.62

DsP Black Rock Pension Fund - 0.37 0.37



Fund Manager Corpus Size Investment in AA or above

rated instruments

June 14

Source: Annual Reports

Industry reports expect a 15% CAGR for the NPS corpus, growing to a size of INR 1.88 lakh crores by

2025. While investment guidelines by PFRDA14

are fairly liberal allowing for investment in debt

securities, we expect the investment to follow trends similar to those witnessed in recent years.

Hence, the total debt supply from the NPS to the infrastructure and non-infrastructure sectors, for

long-term instruments rated less than AA, in the next decade, is expected to be negligible.

The total estimated supply to the infrastructure and non-infrastructure sectors is provided in following

table.

Table 33: Estimated debt supply – NPS (INR crores)


Incremental – Long term and for entities rated less than AA (Infrastructure Sector)

308 620

Incremental – Long term and for entities rated less than AA (Non-Infrastructure Sector)

312 627


4.2.5.3 Mutual funds

Assets under the management of the mutual funds industry have grown at a CAGR of 19% from

2003-04 to 2013-14, amounting to INR 8.3 lakh crores in March 2014. Despite a sizeable corpus, the

total investment of the mutual funds industry into the infrastructure sector, as a percentage of AUM in

the form of NCDs and bonds, has remained less than 10%15

. Further, investment in less than AA

rated papers of this sector has historically remained below 6%10

. Similarly, investment in the non-

infrastructure sector in less than AA rated instruments, calculated as the balance after deducting

investments in the infrastructure sector, is also minimal. Only 7%10

of the AUM has historically been

invested in papers rated below AA grade. The primary reason for low levels of investment in the

infrastructure sector is the highly short term investment nature of the mutual funds industry.

Investments in less than AA rated papers are further limited by the internal investment guidelines

within the mutual funds industry. Though SEBI allows investment by mutual funds in unrated and

below AA rated instruments, detailed parameters for these investments have to be approved by the

Board of the Asset Management Company and Trustees. Investment policies at AMCs are typically

highly restrictive with regard to investments in below AA rated instruments.

14

PFRDA/2014/02/PFM/1 dated January 29th 2014

15 AMFI Annual Reports



Thus, assuming that the current scenario continues to hold in the future, investments from the mutual

funds industry are expected to remain minimal in the future. Our estimates have been provided in

table 34.

Table 34: Estimated Debt Supply - Mutual Funds



540 811


5,522 8,288


4.2.5.4 Multilateral/bilateral institutions

In the past 5-6 years, multilateral and bilateral institutions have increasingly contributed towards

investment in the Indian economy. As seen in table 35, total borrowings from multilateral and bilateral

institutions have increased from INR 11,010 crores in 2007-08 to INR 49,953 crores in 2012-13.

Table 35: Historical debt supply from multilateral/bilateral Institutions

Particulars 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Private Sector borrowing from Multilaterals

572 1409 2410 3033 4812 6034

Financial Institutions. Borrowing from Multilaterals

2350 3721 5385 7511 10290 14479

Private Sector borrowing from Bilaterals

3842 7686 9942 12855 19688 22710

Financial institutions Borrowing from Bilaterals

4246 6417 5484 6234 6570 6730

Total Borrowings 11,010 19,233 23,221 29,633 41,360 49,953

Source: RBI

Going forward, it is expected that borrowings will continue to grow at their historical CAGR of 9%.

Based on the overall trends in debt supply in the infrastructure sector, it is expected that 45-50% of

incremental borrowings will be invested in the infrastructure sector, whereas the remaining will be

invested in the non-infrastructure sector. Further, assuming a debt and tenure adjustment similar to

that of ECBs, we have the following estimates.



Table 36: Estimated Debt Supply from Multilateral/Bilateral Institutions



15,162 23,120


8,927 13,612


4.3 Gap assessment

Having analyzed the total requirement/supply of long-term debt for entities rated less than AA, we

arrive at a gap assessment as given in the subsequent sections.

4.3.1 Infrastructure sector

Table 37: Gap assessment for infrastructure sector (INR crores)


Total debt requirement 29,34,565 58,32,756

Total debt supply 10,31,890 22,23,067

Banks 1,79,864 4,33,445

NBFCs 3,37,372 7,17,677

ECBs 4,84,548 10,05,412

Insurance companies 14,094 41,982

Mutual Funds 540 811

Multi-lats/Bi-lats 15,162 23,120

Pension Funds 308 620

Gap 19,02,675 36,09,689



4.3.2 Non-infrastructure sector

Table 38: Gap assessment for non-infrastructure sector (INR crores)


Total debt requirement 21,63,424 46,29,048

Total debt supply 10,29,199 22,09,521

Banks 4,87,091 10,34,419

NBFCs 98,400 2,09,322

ECBs 3,91,282 8,09,931

Insurance companies 52,113 1,55,222

Mutual Funds 5,522 8,288

Multi-lats/Bi-lats 8,927 13,612

Pension Funds 312 627

Gap 11,34,225 24,19,526


4.4 Sensitivity analysis

4.4.1 Adjustment for credit ratings bracket

While BGFI would target instruments with credit ratings below AA grade, it would be prudent to begin

with providing credit enhancement to instruments rated in the A and BBB categories. In case this

bracket of ratings is assessed for estimating the demand and supply, the gap changes in the manner

presented in the table below.

Table 39: Adjustment to credit ratings bracket


Less than AA A and BBB Less than AA A and BBB

Infrastructure Gap

19,02,675 8,12,013 36,09,689 15,05,666

Non-Infrastructure Gap

11,34,225 9,35,723 24,19,526 19,94,226




4.4.2 Adjustment to investment by insurance sector in less than AA

The insurance sector’s contribution towards debt supply is currently minimal. However, this

contribution depends excessively on the regulatory environment of the sector. In a scenario where

investments from the insurance sector towards debt supply to instruments rated below AA grade

increase, fall in the overall gaps are observed, as shown in the following table.

Table 40: Sensitivity - insurance sector Supply Increase

Infrastructure Gap Non-Infrastructure Gap

Additional %

2015-16 to 2019-20 2020-21 to 2014-25 2015-16 to 2019-20 2020-21 to 2014-25

0% 19,02,675 36,09,689 11,34,225 24,19,526

3% 19,02,508 36,09,068 11,33,959 23,74,309

5% 19,02,399 36,08,654 11,33,779 23,44,165

7% 19,02,290 36,08,240 11,33,598 23,14,020

10% 19,02,128 36,07,219 11,33,324 22,68,804


4.4.3 Adjustment to investment by EPFO, pension funds in less than AA

Despite a large corpus size, investments from the pension sector, i.e. from EPFO, private pension

funds and NPS have remained insignificant in the past. Assuming a change in scenario wherein

investments from this sector increase in less than AA, the following decline in overall gaps is

observed.

Table 41: Sensitivity - Pension funds sector supply increase


Additional %

2015-16 to 2019-20 2020-21 to 2014-25 2015-16 to 2019-20 2020-21 to 2014-25

0% 19,02,675 36,09,689 11,34,225 24,19,526

3% 18,98,557 36,09,164 11.18,657 24,18,990

5% 18,95,810 36,08,815 11,08,279 24,18,628

7% 18,93,062 36,08,465 10,97,900 24,18,265




10% 18,88,938 36,07,941 10,82,332 24,17,714


4.4.4 Adjustment to long-term tenure of credit provided by banks

Currently, for the infrastructure sector, we have assumed 33% of total outstanding debt to be long-

term in nature (greater than 3 years). However, since this figure is simply an extrapolation of residual

maturity data published by RBI, there exist reasons to believe that this share may, in reality, be higher

than 33%. In this case, the estimated gap in the infrastructure sector is subject to change in the

following manner.

Table 42: Sensitivity - Long term debt to Infrastructure from Banks

Infrastructure Gap

% of long term outstanding debt

2015-16 to 2019-20 2020-21 to 2014-25

33% 19,02,675 36,09,689

43% 18,47,729 34,77,664

53% 17,92,808 33,45,676

63% 17,37,908 32,13,723

73% 16,83,030 30,81,802

83% 16,28,170 29,49,909


Similarly, for the non-infrastructure sector, in case this share is higher than the 28% assumed, the

estimated gap changes in the following manner.

Table 43: Sensitivity - Long term debt to Non-Infrastructure from Banks


% of long term outstanding debt

2015-16 to 2019-20 2020-21 to 2014-25

28% 11,34,225 24,19,526

38% 9,60,240 20,50,043




48% 7,86,259 16,80,566

58% 6,12,280 13,11,095

68% 4,38,304 9,41,629

78% 2,64,329 5,72,166




5. Requirement of Bond Market in India

As analysed in the earlier sections, the traditional sources of finance will not be sufficient to meet

investments and therefrom arise debt requirements for the future. The banking sector which has

been the mainstay for debt financing is increasingly facing stress. Therefore, it is imperative that

alternative financing channels be developed in a systematic manner to supplement traditional bank

credit. A well-functioning corporate debt market could play a critical role by supplementing the

banking system to meet the requirements of the corporate sector for long-term capital investment and

asset creation.

Bond finance differs from conventional bank finance in certain aspects. These are discussed below

Fixed v/s. Floating rate

Bond finance typically comprises a fixed coupon rate while banks loans usually have a

floating interest rate, linked to the interest rate cycle. By taking on a fixed interest rate, the

borrower would be able to better forecast fixed cash flows. The choice of entering into a

floating rate or fixed rate debt arrangement essentially depends on market timing and risk

appetite of borrower/investor. For instance, if the interest rates are expected to increase over

a certain time period, it might be more beneficial for the project to enter into a debt

arrangement/refinanced existing debt arrangement through a fixed coupon bond.

Longer maturity period

The investment appetite for investors on the asset site depends on the profile of their liability

side. The liability tenure of bond investors such as insurance funds and pension funds is

much longer than that of banks. Therefore, these bond investors would have the appetite to

invest in long-term projects. In general, bonds have a maturity period longer than bank loans.

Exit Option

Banks typically have prepayment penalty clauses written into the loan agreements, while in

bond finance theoretically there is no such penalty. For instance, if the borrower wishes to

close out an existing loan by prepaying it a penalty (to the extent prepaid) will be levied.

Borrowers can provide an option of exiting bonds to investors by listing them in the

exchanges. Bonds may also have a put option, where the investor is allowed to sell the bonds

based on certain conditions back to the borrower. Similarly call options in bonds enable

borrowers to buy back the bonds from investors.

Negative Cost of Carry

Bond funds have to be drawn in one go while bank funds can be drawn in tranches. Drawing

in tranches reduces the negative carry.

High Transaction Cost

The transaction costs associated with issue of bonds (rating of bond, listing on exchange etc.)

would be higher than those for bank financing (as a percentage) for a higher quantum. But the

amount would be minimal and therefore would not be a significant factor affecting the choice

of one financing arrangement over the other.

Pricing Mechanism



Yields on bond issuances are typically set at a spread over and above the traded government

security bond issuances. Banks set their lending rates at a spread over and above the base

rate. The base rate accounts for cost of deposits, cost of maintaining CRR and SLR and

overheads.

Recovery mechanism

While banks have the SARFAESI Act (The Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002) to resort to non-judicial recovery

mechanisms, bond investors do not have any such measures.

5.1 Key Issues with the bond market in India

As stated earlier, the size of the corporate bond market in India is small in comparison to other

emerging economies. The public sector dominates the issuances in the corporate bond market

segment in the form of banks, public sector oil companies or government-sponsored financial

institutions.

Figure 14: Issuances by issuer type (INR crores)

Source: Prime Database, CRISIL Research

Share of issuances in the infrastructure sector (for instance power generation, oil drilling, telecom and

roads), has been volatile and was lower in 2013-14 as compared to the previous years. Further, the

share of issuances in the manufacturing sector has traditionally remained low at about 4%.

Figure 15: Sectoral share in primary market issues

Industry/Sector 2009-10 2010-11 2011-12 2012-13 2013-14

Finance (including Banking)

70.2% 71.0% 77.1% 69.6% 71.5%

Infrastructure 16.2% 15.1% 15.2% 16.2% 12.5%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2009-10 2010-11 2011-12 2012-13 2013-14

Private Sector

State Level Undertakings

Public Sector Undertakings

State Financial Institutions

All India Financial Institutions &Banks /subsidiaries



Industry/Sector 2009-10 2010-11 2011-12 2012-13 2013-14

Manufacturing 5.7% 8.2% 2.8% 4.0% 4.1%

Others 7.9% 5.7% 5.0% 10.2% 11.8%


Key issues of the bond market are highlighted below in the following sub-sections.

5.1.1 Lack of depth in corporate bond market in India

Corporate bond markets in India remain undeveloped in comparison with corporate bond markets in

other developing and developed countries. The mobilization through debt on private placement basis,

over the last few years is given in the table below.

Figure 16: Amount raised through private debt placement (INR crores)

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

1,74,327 1,89,640 1,98,555 2,58,869 3,52,169 2,70,946


The summary by type of issuer is given in the table below.

Figure 17: Issuances by issuer type (INR crores)

Issuer Type 2013-14

All India Financial Institutions & Banks /subsidiaries

1,44,926

State Financial Institutions 1,482

Public Sector Undertakings 31,248

State Level Undertakings 3,686

Private Sector 89,603


5.1.2 Low credit rating for infrastructure projects

Infrastructure projects present multiple risks to project financiers. These projects are typically

characterized by non-recourse or limited recourse financing. The risks, especially credit risk, are high

at the project inception stage, due to which these projects typically get a low credit rating and are

likely to be not higher than the BBB or A category. An analysis of infrastructure companies covered by

the Prowess database reveals that 79% of long-term instruments of the infrastructure sector are rated

below AA.

Figure 18: Long-term instruments rated below AA in infrastructure sectors (INR crores)

Infrastructure sub-sectors Total Rated Credit Long Term Long Term Rated

Below AA

Construction 41,59,467 45% 90%



Infrastructure sub-sectors Total Rated Credit Long Term Long Term Rated

Below AA

Electricity 22,12,809 77% 98%

Mining 3,68,728 36% 48%

Source: Prowess

Further, it is typically the AAA rated entities like the Public Sector Utilities (PSUs) which are able to

mobilize high amount of debts in the market, while the entities rated BBB and below are unable to

mobilize such amounts of debt.

5.1.3 Absence of bond Market for low rated paper

Unlike in the rest of the world, BBB-rated papers do not have a market in India. As can be seen from

the following figure, over 90% of the bond issuances in India have a rating of AA or above, with the

majority being AAA-rated securities.

Figure 19: Bond issuances by rating (% of issuance values)


5.1.4 Low risk appetite of investors and regulatory restrictions

Several regulatory restrictions and internal guidelines curtail investments of institutional investors in

the corporate bond markets. Current regulations prevent insurance companies and pension funds

from investing in debt securities rated below AA. While there is a provision for investment in A+

security with special approval from the investment committee, insurance companies and pension

funds typically do not invest in securities rated below AA. Internationally, insurance companies do

invest in paper rated below AA. In UK, for instance, BBB- is the cut-off for investment by insurance or

pension funds.

For the insurance sector, IRDA mandates that total investment in central government securities, state

government securities and other approved securities will not be less than 50% taken together.

Regulations further mandate life insurance companies to invest a minimum of 15% of their controlled

70% 69% 76%

66% 71%

21% 23% 19%

28% 23%

8% 8% 5% 5% 5%

0% 1% 1% 0% 2%

FY10 FY11 FY12 FY13 FY14

AAA AA A BBB



funds in the infrastructure and social sectors. For non-life/general insurance companies, this figure is

10%. Life insurance companies which are dominated by LIC have found it tough to find

adequate/high- quality investments in this sector, and most of their investments in the infrastructure

sector have been in infrastructure created by the public sector and almost none in the private sector.

5.1.5 Limited secondary market activity

Historically, private placements have dominated the landscape of the corporate bond market in India.

In the case of the primary markets, nearly all of the debt raised (over 90%), is privately placed while

public issues form a miniscule portion. The reasons for this include lack of adequate participation in

public issues and the relatively stringent regulatory requirements associated with public issues that

entail cost and time on thepart of the borrowers.

This dominance of private placements and institutional players has led to a lack of liquidity and

transparency in the secondary market for corporate bonds, inhibiting their development. Institutional

investors are typically long-term investors who buy-and-hold and do not enter the secondary market.

Retail investors are essentially absent from these markets. The consequent lower availability of bonds

for trading in the secondary market hampers the price discovery process. Hence, the corporate bond

market lacks a benchmark yield curve across maturities, chiefly owing to lower availability of bonds by

favored/trusted issuers, which impacts pricing and liquidity in the secondary markets.

5.1.6 Lack of awareness and information

The lack of awareness and knowledge of bonds as an asset is one of the main causes for the lack of

participation, especially on the part of the retail investors.

Inadequate information or information asymmetry pertaining to the issuer has also kept retail investors

at bay. The low level of information dissemination results in sub-optimal assessment of investment

risks and serves as a deterrent for prospective investor participation.

Private placements, which form a majority of corporate bond market issues, typically require limited

disclosures to investors. This requirement for public issues is arduous in terms of information-sharing

and cost in the initial stages. Hence, to do away with information asymmetry, there is a need to shift

from private placements to public issues. The development of the rating market under Basel II norms

has expanded the flow of information to investors; however, some of the lacunae in terms of

hesitance to share information will have to be overcome to develop the market.

5.2 Credit enhancement can help bridge the gap

Credit enhancement is a reassurance given by a third party to the lender that it would honor the

lender’s obligations in case the borrower defaults. In the context of the constraints mentioned above,

the aim of credit enhancement would be to increase the rating of a typical BBB project to a level (such

as AA or even higher) that investors such as insurance companies and pension funds would be more

comfortable with.

Such a scheme, in addition to opening up alternative sources for finance, could also deepen the

fledgling Indian bond market.



5.3 Sectors that can potentially tap the bond market through

credit enhancement

5.3.1 Infrastructure

As seen in the previous chapter, the total gap in financing (long-term for entities rates less than AA)

for the infrastructure sectors over ten years would be to the tune of around INR 55 lakh crores (by

2024-25); this is a major gap which cannot be addressed by the traditional sources of finance and the

development of the bond market is essential to at least partially fund the gap.

The earlier sections took bottom-up approach to establish the need for a bond market to cater to the

large projected gap in long-term debt financing for low rated entities.

In this section, a top-down approach is used to establish the same need. This approach involves

analysis of bank loan ratings. Bank loan ratings commenced in 2007, post RBI’s guidelines on capital

adequacy for banks. As per these guidelines all bank loans greater than INR 10 crores must be rated

by a recognized credit rating agency. Analysis of a cross-section of ratings by CRISIL (which

represents 50% of the market today) reveals that around INR 3 lakh crores of bank loans in the

infrastructure sector are rated less than AA today. Adopting our earlier assumption that overall bank

credit will grow at 16%, the figure of INR 3 lakh crores would become almost INR 13 lakh crores by

2024-25.

5.3.2 Non-infrastructure

Similarly among the non-infrastructure sectors, certain sectors such as real estate development,

engineering and capital goods manufacturing, require long-term loans and subsequent funding. As of

March 2014, close to 75% of the outstanding long term bank credit to the real estate sector was rated

below AA. Similarly, close to 45% of the outstanding long-term credit to the steel manufacturing sector

was rated below AA.

Overall, around INR 6 lakh crores is rated less than AA today in the non-infrastructure sectors.

Growing this at 16% gives a figure of around INR 26 lakh crores by 2024-25.

A mechanism for credit enhancement could allow these sectors to access the bond market.

5.4 Existing credit enhancement mechanisms in India

Several credit enhancement initiatives have been announced in the recent past to encourage the flow

of funds to the infrastructure sector. No such mechanisms are available for the non-infrastructure

sector currently. An overview of these instruments and their addressable market is provided in the

following sub sections.

5.4.1 Partial Credit Guarantee Scheme (PCG)

Under the partial credit guarantee scheme, India Infrastructure Finance Company Limited (IIFCL),

supported by ADB, provides partial credit guarantee to enhance the ratings of project bond issuances

in order to enable channelization of long-term funds from the bond market towards the infrastructure

sector. By virtue of the AAA credit rating that IIFCL enjoys, the rating of the bonds can be enhanced

to a maximum of AA+ (as it is a partial credit guarantee). This mechanism is considered as a

refinancing mechanism. Only commissioned projects operating for at least six months post the



commercial operations date (COD) are eligible to access this scheme, through bond issuances to

refinance existing debt. The features of the PCG include the following:

First loss guarantee

Irrevocable and unconditional guarantee

Rolling cover with guarantee quantum usable at any time over the tenure of the bond

No automatic reset

Automatic repayment of utilized guarantee from subsequent guarantee

The scheme was launched in 2012. Unfortunately it hasn’t seen much traction yet. A pilot transaction

with a SPV of GMR Jadcherla Expressway was initiated in 2012 for refinancing a debt of around INR

320 crores. While the transaction reached the final stages including signing of agreement with IIFCL,

attaining a credit rating for the issuance as well as garnering principal interest from investors; the deal

ultimately fell through because of the high interest rate regime prevailing then. GMR ultimately sold off

its stake in the SPV to a private equity player. A similar transaction was also initiated with a group

company of L&T but it also fell through due to similar reasons.

The measure of business that the PCG scheme could hope to achieve would be intrinsically linked to

its capital as well as the potential refinancing market. Recent reports indicate that the initial fund to

cater to the PCG scheme would be around INR 1500 crores (around 50% is funded by ADB).

Considering capital adequacy of 15-25%, the capital should be enough to generate a business of

around INR 6,000-9,000 crores. It is understood that IIFCL and ADB are evaluating several proposals

(5-6 in number) currently.

PCG in India is still a nascent concept. In the last decade or so only five such transactions have taken

place, as understood from the public domain.

Table 44: Past PCG transactions in India

Issuer Guarantor

Ballarpur Industries Ltd. IFC

Ballarpur Industries Ltd. FMO, Netherlands

Bharti Mobile Ltd. IFC

Water and sanitation pooled fund of Tamil Nadu USAID/TN State Govt.

Tata Tele Services Tata Sons

Source: Various

Moreover, there are reports that IIFCL is looking at a restructuring exercise to enable it to play a better

role in the infrastructure financing space. In the light of this and the afore-mentioned nascence of the

product, it remains to be seen how much of business the PCG scheme could generate in the coming

years.

5.4.2 Infrastructure Debt Fund (IDF)

IDFs essentially act as vehicles for refinancing existing debt (or as a takeout financing scheme) of

infrastructure projects which have attained commercial operations, thereby creating headroom for

banks to lend to fresh infrastructure projects. The IDF can be set up either as a trust, i.e., as a mutual

fund or as a company, i.e., as an NBFC. The latter has seen some traction in the market.

IDF-NBFC



These IDFs commenced operations about a year back, and target to take over loans for projects

created through the PPP route. The project or the concessionaire will issue bonds to raise funds from

the IDF. The take-over or refinancing would be governed by the tripartite agreement between the IDF,

the concessionaire and the project authority, to ensure a compulsory buyout with termination payment

in the event of a default in repayment by the concessionaire. The tripartite agreement binds all the

parties collectively and aids credit enhancement. Model tripartite agreements for the road sector as

well as the port sector have been finalized and approved by the Government of India.

Two IDF-NBFCs are operational:

India Infradebt Ltd. formed by ICICI Bank, Bank of Baroda, Citicorp Finance (India) Ltd. and

LIC. The entity has undertaken its first sanction to Himalayan Expressway Limited.

L&T Infra Debt Fund formed by L&T Infra Finance and other companies in the L&T group

While India Infradebt has raised INR 300 crores in the market the latter L&T Infra debt has raised INR

250 crores. India Infradebt has signed its first transaction (less than INR 50 crores as per information

received through interactions). Interactions reveal that these funds are finding it tough to find

adequate assets in the market; the primary reason being that banks today are not willing to sell off

their existing assets which have been commissioned as their perception is that risks in these projects

reduce considerably post commissioning. Discussions are also underway to possibly do away with the

tripartite agreement which currently adds much complexity to the concept – however, it remains to be

seen how the credit enhancement would then be achieved without the tripartite agreement.

IDF-MF

Three IDFs have been set up through the mutual fund route by IL&FS (~INR 720 crores AUM), IIFCL

(~INR 300 crores AUM) and SREI. The investment guidelines of these IDFs mention that at least 90%

of the AUM should be invested in infrastructure companies or infrastructure projects/SPVs or banks

loans in terms of completed and revenue generating projects or public finance institutions or

infrastructure finance companies. Today, while mutual funds are technically allowed to invest till

investment grade (BBB), there are hardly any investments below AA (as seen in the earlier chapter).

Therefore, the appetite of these funds for investment in infrastructure sector is questionable.

Moreover, their ability to raise resources/funds remains to be seen.

5.4.3 Credit enhancement by banks

On May 20, 2014, RBI had issued a draft circular allowing banks to provide partial credit

enhancements to bonds issued for funding infrastructure projects by companies/SPVs. This draft

circular is open for public comments. Brief particulars of the scheme are as follow:

Mechanism of providing credit enhancement to the bonds issued by infrastructure

project/SPV is to separate the debt of the project company into senior and subordinate

tranches

Banks will provide subordinate debt either in the form of a loan or contingent facility

Partial credit enhancement shall be limited to the extent of improving the credit rating of

bonds by maximum of 2 notches or 20% of the entire bond issue whichever is lower

RBI has invited comments from market stakeholders. Our internal understanding, as well as

supplemented by external interactions, is that the scheme in the current form will find it difficult to get

much traction due to the following reasons.

Most infrastructure projects are rated below A. The credit enhancement restrictions imposed

in this scheme currently, would not be enough to credit enhance the bond issuance to AA



In light of the recent initiatives to make long term financing more attractive – both on liabilities

side (through issuance of long term bonds) and assets side (flexibility in structuring), it

remains to be seen if banks would cater to credit enhancement which has not been a

traditional focus

A prohibitory capital requirement and risk weight has been imposed

There is undoubtedly intent by the Government and the regulators to develop the bond market,

especially for the infrastructure sector. However the viability of the afore-mentioned schemes is yet to

be established. Even if for a moment, we assume that the schemes are viable the gap presented in

Section 4.3 is just too large for these three schemes to address. A concept such as BGFI is therefore

worth exploring.



6. Initial Thoughts on Bond Guarantee Fund for

India and Next Steps

6.1 Stakeholder’s initial inputs on BGFI

As seen in Chapter 4, the total gap in long-term debt financing that entities (rated less than AA) in

infrastructure sector and non-infrastructure sector are projected to witness is around INR 60 lakh

crores and INR 35 lakh crores respectively. Also as seen in Chapter 5, the existing credit

enhancement mechanisms which are present only in the infrastructure sector today will be able to

address only a minimal portion of the afore-mentioned gap. Therefore, a portion of virtually the entire

gap could be addressed by BGFI – thereby establishing a potential market and a business case.

CRIS has also undertaken interactions with a cross-section of stakeholders (41 individuals across 27

entities) – government/ministry entities, regulators, investors, borrowers and banks amongst others to

get their perspectives on this concept and their inputs on some of the key issues (given below) that

were highlighted in the inception report. These would serve as inputs in the next stage pertaining to

assessment of financial viability and actual structuring of the entity.

Who will own the entity?

What will be the legal structure of the entity/Who will regulate the entity?

What will be its business model, product offerings and associated structuring/pricing

mechanisms?

What are the institutional and process frameworks that need to be in place?

How does one promote the marketability and acceptability of the product?

The details of the people met are given in Annexure 1, while the summary of the discussions held is

given below.

1. Overall concept – Unanimous approval was received for the concept. It was agreed that a

credit enhancement mechanism was required to kick start the bond market in India, especially

in the light of the lack of low rated bonds and the investment restrictions on bond investors.

2. Ownership – Again the unanimous single opinion was that the entity should be owned and

capitalized such that it is AAA rated. Such a rating would be crucial to achieve the desired

amount of credit enhancement either through partial guarantee or full guarantee. However,

when it came to the question of who should own the entity, there was diversity in opinions –

majority government holding (as great as 100%) at one end to majority private sector holding

(as great as 100%) on the other. The pros and cons of both the extremes were discussed

a. Majority government holding – While participation by the government would lend

credibility to the concept amongst investors and other stakeholders, a majority stake

by the government could result in slow decision-making process, decreased

efficiency, inability to attract the right set of private sector management, and on a

generic level – perhaps a moral hazard (due to involvement by the government,

stakeholders would expect a bailout by the government in case of any issue).

b. Majority private sector holding – While participation by the private sector would bring

in requisite skill sets in terms of credit appraisal skills and robust



processes/frameworks, acceptability of such an ownership might be an issue at least

in the initial stages, with regards to creditworthiness, especially with investors.

The consensus seemed to be that the entity should have a judicious amount of government

ownership but have majority private sector ownership – to promote acceptability as well as to

ensure that the entity is run by professionally appointed management

a. It should be noted that, in the absence of a government majority ownership it might

not be possible to have a single majority shareholder. A widely held structure could

be explored possibly on the lines of IDFC

Stakeholders such as banks, insurance companies are willing to explore taking

up a share in the capital to help set up the entity

b. IDFC when it was set up had the following structure – 35% held by the government,

5% by the Industrial Development Bank of India (IDBI), 40% by foreign investors

including multilateral institutions and 20% by domestic institutions and banks.

Representatives from each bucket of investors were present on the Board of the

company. Representation from the government ensured easy access to various

stakeholders and forums within the government which was crucial at the development

stage of IDFC. This kind of a commitment from government would be required at

least during the initial stage of BGFI too.

3. Capital – The entity should be sufficiently capitalized such that it attains a credit rating of AAA.

The capital could take several forms like

a. Direct infusion by various investors

b. Callable capital

The government could also participate in the form of a long-term subordinate debt. IDFC has

a 50-year subordinate debt from the government amounting to almost INR 650 crores.

4. Legal structure – The entity is meant to be a pure guarantee company. While the operations

of such an entity do not fall strictly under the ambit of current regulated structures, the

feasibility of structuring the entity along the following lines should be explored

a. As a NBFC under RBI – The nine types of NBFCs regulated by RBI are - i) Asset

finance companies, ii) Investment companies, iii) Loan finance companies, iv)

Infrastructure finance companies, v) Core investment company, vi) Infrastructure debt

fund NBFC, vii) NBFC – Factors, viii) NBFC – Microfinance Institution and ix) Non-

operative financial holding company. Technically a guarantee company does not

strictly belong to any of the afore-mentioned types. A new form of NBFC might then

need to be considered. A point to keep in mind is that RBI has stringent guidelines

when it comes to capital adequacy and exposure limits. These might need to be

relaxed for such an entity.

Another structure that could be studied is the recent Mortgage Guarantee

Corporation, guidelines of which were released by RBI recently. Indian Mortgage

Guarantee Corporation, the first of its kind, started operations last year.

b. As a bond insurance company under IRDA – The entity could be structured akin to a

mono line insurer or a bond insurance company or a bond guarantee company. IRDA

today does not have explicit regulations governing such an operating model currently.

Therefore a fresh set of regulations would need to be explored.



c. As an entity under a special act or statute under the Government – This would not be

preferable as it would mean that the entity would be Government owned.

d. As a public financial institution – Section 4A in the Companies Act established the

definition of Public Finance Institutions (PFIs). This applies to only those entities

which are established under a Special Act or a Central Act, operational for at least 3

years and have 51% ownership by the Government. Therefore, it may not be feasible

for BGFI to be set up as a PFI

e. Other legal considerations – The key regulations governing issuance and listing of

bonds in India are covered by SEBI. Moreover the Companies Act and the Indian

Contract Act will cover issuances through public issues, private placement as well as

issuances of guarantees.

5. Business model – The entity should be self-sustaining, i.e able to sustain on its own

revenues. Moreover the entity should be only in the business of providing guarantees (and

not undertake any other activities) so that its objective is not diluted

a. Products – BGFI can essentially provide credit enhancement either through a full

guarantee or a partial guarantee. Assuming BGFI’s credit rating is AAA, in the former,

the target rating achieved for the issue would be AAA while for the latter the target

rating achieved would be maximum AA+. As seen earlier the partial guarantee as a

concept is nascent in India with just a handful of such transactions having been made

in the last decade. It might therefore be prudent to employ a mix of full and partial

guarantees at the start, to establish credibility and acceptability for the products.

However, it should be noted that the demand for a full guarantee/partial guarantee

would be linked to a cost-benefit analysis at the issuer’s end.

b. Source Rating – As mentioned earlier, BGFI would target entities rated less than AA

category. It might be prudent to target the higher rated (amongst these) such as A

and BBB to begin with and as pilot transactions; as analysed in Chapter 4, a

significant portion of debt requirement below AA pertains to entities rated in the A and

BBB categories.

c. Target Rating – Related to point a) above, it might be advisable to credit enhance the

pilot transactions to AA+/AAA to promote acceptability in the market.

d. Pricing – Pricing of such an instrument would be critical; the prospective savings in a

long tenure bond instrument could potentially attract the traditionally bank-funded

firms. 10-year bond spreads for BBB, A and AA bonds are shown in the figure below.

As can be seen, borrowers issuing A and BBB bonds can expect a gross saving of

100 to 250 basis points. The net savings would be lower, adjusted for guarantee fees,

liquidity premium, processing charges etc.

Today the 10-year government bond rate is traded at a yield of around 8.50-8.75%.

AA spreads are around 110 basis points, so a standalone AA bond would be priced at

around 9.60-9.90%. Investors in a credit-enhanced issue would demand a liquidity

premium of 50-75 basis points, pushing the cost of the AA (so) bond beyond 10%.



Figure 20: 10-year spreads data for AA, A and BBB category bonds in India

Source: CRISIL Research

Banks today, as we know, follow relationship-based pricing and not risk-based

pricing. Therefore, most of the prominent firms in the country with long standing

relationships with banks are enjoying favourable interest on the bank loans today.

The cost saving, if any, between the bank loan and the bond interest rate (which is on

a high at the current juncture) is just not attractive enough for these firms to migrate

to the bond market (partly the reason for the PCG pilot transactions have struggled).

Moreover, with the approval to banks to raise long term infrastructure bonds, the

pricing of loans is going to become even more aggressive.

Therefore, it might be advisable to identify smaller firms/firms with smaller promoters

with good credit quality which do not enjoy such favourable interest rates with banks

to use this guarantee, as a pilot.

6. Processes and frameworks – It would be extremely critical for the entity to develop credit

appraisal frameworks and skillsets in-house.

6.2 Next steps

The next stage of the engagement will include the following tasks

Study various possible guarantee instruments and structures which could be housed

under BGFI

Study global facilities similar to BGFI to understand their operations, best practices and

the challenges that they have faced and are facing

Develop a detailed business plan for the entity

The output will be part of the Interim Report which will be submitted at the end of October

2014

Thereafter, a presentation on the same shall be made to the Steering Committee



7. Annexure 1 – Stakeholder meetings

Table 45: List of stakeholders met

S.No. Category Name of firm/organization

Name Designation

1 Government Department of Economic Affairs

Mr. Manoj Joshi Joint Secretary - Capital Markets

3 Government Department of Economic Affairs

Ms. Sharmila Chavaly

Joint Secretary – Infrastructure

4 Government Department of Financial Services

Mr. Alok Tandon Joint Secretary – Industrial Finance

5 Government Department of Financial Services

Mr. Anup Wadhawan

Joint Secretary – Insurance and Pension Reforms, Banking Operations

6 Regulator IRDA Mr. Ramana Rao Joint Director - Investment

7 Regulator RBI Mr. Sudharashan Sen

CGM-Department of Banking Operations and Development

8 Regulator SEBI Mr. Ananta Barua Executive Director

9 Regulator PFRDA Mr. R V Verma Member (Finance)

10 Regulator EPFO Mr. Sanjay Kumar F.A & C.A.O

11 Investor LIC Mr. SB Mainak Managing Director (Investment)

12 Investor ICICI Prudential Life Insurance Company

Mr. Jitendra Arora Senior Vice President

13 Investor HDFC Standard Life Mr. Prasun Gajri Chief Investment Officer

14 Investor HDFC Standard Life Mr. Badrish Kulhalli Fund Manager – Fixed Income

15 Investor Birla Sun Life Mr. Sashi Krishnan Chief Investment Officer

16 Investor SBI Life Insurance Corporation of India

Mr. Chandrajit Ranavde

Head-Investments

17 Investor SBI Life Insurance Corporation of India

Mr. Nirmal D. Gandhi

AVP - Investments

18 Investor HSBC AMC Mr. Tushar Pradhan

Chief Investment Officer

19 Investor HSBC AMC Mr. Sanjay Shah Portfolio manager – EPFO

20 Investor i-SEC Primary Dealership

Mr. Yatin Vinekar Portfolio manager – EPFO

21 Investor Reliance AMC Mr. Amit Tripathi Chief Investment Officer – Fixed Income Investments



S.No. Category Name of firm/organization

Name Designation

22 Investor SBI Mutual Fund Mr. Mohammed Umar

Portfolio manager – EPFO

23 Investor SBI Mutual Fund Mr. BK Das Deputy General Manager

24 Investor Kotak AMC Mr. Sandesh Kirkire

Chief Executive Officer

25 Investor Franklin Templeton AMC

Mr. Sumit Gupta Co-Head Credit Fixed Income

26 Investment bank

HDFC Bank Mr. Nishikant Das Head-Debt Capital Markets

27 Investment bank

HDFC Bank Mr. Sharad Rungta Head- Debt Syndication

28 Investment bank

Citibank Mr. Neville Fernandes

Director, Head – Debt Capital Markets

29 Investment bank

Citibank Mr. Shitij Kale Vice President – Corporate and Investment Banking

30 Investment bank

Citibank Mr. Rishi Godha Director – Investment sales and structuring

31 Investment bank

Bank of America Mr. Jayesh Mehta Managing Director & Country Treasurer

32 Investment

bank Bank of America

Mr. Shivpreet Tathgir

Director – Institutional Sales

33 Investment

bank Bank of America

Mr. Suvrajyoti Pattanaik

Vice President – Credit Trading

34 Bond Issuers Tata Teleservices Mr. Prasad Iyer Head of Funding and Treasury

35 Bond Issuers GMR group Mr. Jitendra Jain CFO – Corporate Finance

36 Banks ICICI Bank Ms. Zarin Daruwala President - Wholesale Lending

37 Banks ICICI Bank Mr. Suresh Kumar Head-Debt Capital Markets

38 Banks Bank of Baroda Mr. Ranjan Dhawan

Executive Director

39 Others India Infradebt Ltd. Mr. Suvek Nambiar CEO and MD

40 Others India Infradebt Ltd. Mr. Akashdeep Jyoti

Head – Risk and Compliance

41 Others IIFCL Mr. SB Nayyar Chairman and MD


[b]

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