In his Budget speech, the Finance Minister announced that Sebi (Securities and Exchange Board of India) may mandate large corporates to meet about one-fourth of their financing needs from the bond market. Ashu Suyash, MD and CEO, Crisil told Sandeep Singh that while the move will reduce dependence on banks and create a vibrant market, it will also create room for banks to lend to small and medium enterprises. She also lauded the government’s move to allow insurance and pension money to be invested in “A” rated papers. Edited excerpts:
How do you see the announcement on large corporates to borrow 25 per cent of the borrowing requirement from the bond market?
To make it 25 per cent is significant. It is very good for the issuance side and what will make the issuance to start moving is the interest rate outlook. A number of things have come in together. While RBI released large borrower framework last year, now you have issuance of 25 per cent of debt requirement for listed company universe. The two together send a clear message: a) it will reduce the dependence on banks; b) it will create a vibrant market.
Unless you have regular issuance, you can’t develop a really robust yield curve for corporate bonds, which is there for G-Secs. And frequent issuance will make sure that adequate trading happens. While it will also create room for banks to lend to the SMEs, it will also reduce the impact of one company on a bank’s books.
The government also increased the scope for “A” rated papers. How do you see that?
We have been discussing this with the government in the past. With the government allowing insurance and pension companies to go for “A” rated papers, the threshold for investors will drop at “A” and in our assessment what sits between “A” and “AA(-)” is a very large body of issuers. For the issuers, there will be a cheaper funding source because bond markets are more efficient. So it is a win-win for all. All said and done, it augurs well for financing per se. Financing was too concentrated only in the large ticket. With the country growing and and we remaining attractive for investors, the demand is there. This will unlock room in the long-term pool also because of the threshold being dropped to ‘A’. While the benefits may not come in a year, it has to be seen as a reform continuum.
Crisil recently launched CRISIDEX. How will it benefit the ecosystem?
Its a sentiment index and it takes into account production data, capacity utilisation, job scenario and sales outlook for the set of companies. With the on-ground survey, this will give a view on whether policy measures implemented are delivering any results or not. Along with SIDBI, we will survey around 1,100 companies at around 700 locations across 220 districts in a bid to provide granular insights on the sector.
Recently we also came up with credit assessment scores for MSEs. While is no proper coverage of small MSEs and this digital platform will connect the whole ecosystem – the MSEs and all lenders such as banks and NBFCs, etc. For anyone whose turnover is less than Rs 10 crore, we do a comprehensive health check and give a credit assessment score. It takes into account the promoters track record, business model, relative financial standing and sectoral development and it acts as a very good assessment tool for lenders.
How do you see the Budget and what’s your view on fiscal slippage?
This Budget has pushed the boundaries on inclusion and plugged some gaps on social security with the announcement around the national health, which is material. By reducing the corporate tax rate for companies with turnover of up to Rs 250 crore, it covered a very large population and it should be seen a progression towards the next step.
While there is a push for inclusion and rural growth, there are two risks — implementation and fiscal consolidation as there is some slippage on the fiscal front. However, I would take some comfort from where the money is going as it has not gone towards subsidies and instead it has gone towards improving productivity, improving jobs and social security.