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26Th Aug 2016
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| Masala Bond (The Total Investment & Insurance Solutions) |
The Reserve Bank of India's (RBI)
proposal to allow banks to raise additional tier-1 and -2 capital by issuing
masala bonds would ease access to capital, global credit rating agencies Fitch
Ratings and Moody's Investor Service said on Friday.
Masala bonds are rupee-denominated
bonds issued in offshore capital markets.
According to Fitch Ratings, the
masala bonds would widen the investor pool as the domestic investor pool is
limited in size given the scale of capital needed by the banks.
"Fitch estimates a capital
shortfall of $90 billion over the next several years as Basel-III regulatory
requirements build from the financial year 2017 (FY17) to FY19," the
rating agency said in a statement. The Total Investment & Insurance
Solutions
Moody's said the rupee-denominated
bonds overseas was a credit-positive measure for the Indian banks as it will
help create an alternative funding source.
Moody's expected only well-rated and
well-managed banks will be able to tap the international market for such
issuance while relatively weaker banks will have to depend on the Indian
government for their capital needs. The Total Investment & Insurance
Solutions
The RBI's proposal came as part of a
series of measures pertaining to India's fixed-income and currency markets
announced on Thursday.
According to Fitch, Indian banks
would find it challenging to raise sufficient additional tier-1 capital through
the domestic markets. The Total Investment & Insurance Solutions
This is the case even as most of the
capital needed will be required to be denominated in rupee owing to the
currency structure of most banks' balance sheets, the rating agency said.
"As such, enabling banks to
issue masala bonds opens a window to a much larger investment pool while
simultaneously addressing the problem of currency mismatches which had existed
with previous international bond issues," Fitch said.
According to the rating agency, the
masala bonds market remains in its infancy and corporates like HDFC and NTPC
raised funds issuing such bonds this year.
"As such, the extent to which
banks will be able to use the masala bonds channel to raise capital remains to be
seen, and will depend to a large extent on the foreign investors' risk appetite
and pricing," Fitch added. The Total Investment & Insurance
Solutions
According to Moody's, the Indian
central bank's new guidelines on corporate bond issuance will enhance liquidity
in the bond market though at present corporate bond market amounts to around 31
per cent of total corporate credit. The Total Investment & Insurance
Solutions
"Based on the financial
performance of these banks for the year ended March 31, 2016, our analysis
suggests that the external capital requirements for the 11 public sector banks
that Moody's rates totals about Rs 1.2 trillion -- a figure which far exceeds
the remaining Rs 450 billion included in the government's budget for capital
distribution to the banks until 2020," Moody's said. The Total Investment
& Insurance Solutions
Moody's expected RBI to announce
measures that would develop the bond market addressing issues like
bank-dominated financial system -- investment mandates of institutional
investors do not permit large investments in corporate bonds -- and the lack of
functional trading systems for bonds.The Total Investment & Insurance
Solutions
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