RBI-BONDS-REAX2LST(BCM29)

Stating that the RBI measures will change the lending Stating that the RBI measures will change the lendinglandscape, Crisil Chief Analytical Officer Pawan Agrawal said,"This is a comprehensive set of guidelines that will addressmultiple issues. It will reduce the disproportionate role bankloans have in corporate funding, materially improve corporatebond market liquidity and afford greater role for globalinvestors. "The rules will encourage innovation, sharpen focus onrisk-mitigation tools. These guidelines and follow-throughs,if effectively implemented, will help the nascent domesticcorporate bond market finally bloom," Agarwal noted. On the new norms on large exposure limits, he said theguidelines to enhance credit supply to large borrowers throughthe market mechanism will herald better risk-based pricingculture in the banking system. "These measures will make it costlier for banks lend to’specified large borrowers’ beyond a defined threshold. Thisthreshold, however, still remains high. Once they get loweredover time, we would see a meaningful shift in borrowers to thecapital market," he said. On the liquidity enhancement measures, Agarwal saidliquidity has been a long pending concern of corporate bondinvestors. "But new steps of introducing electronic platforms… bypermitting brokers in corporate bond repos, initiatinginclusion of corporate bonds in LAF and allowing globalinvestors to directly trade through stock exchanges or the OTCsegment will help address this and boost confidence of bothissuers and investors." Senior Director at Crisil Somasekhar Vemuri said: "Therelaxation in the limit for partial credit enhancement, from20 per cent to 50 per cent at a systemic level, shouldcomfortably enable corporates in the ‘A’ rating category andpassive infrastructure projects in the BBB category to upgradetheir credit ratings to the AA threshold." He added: "For a 50 per cent credit enhancement, whichleads to a notch-up of a ‘BBB’ or ‘A’ category issuer to an’AA’ or ‘AA+’ which is preferred by investors, at least threebanks will have to participate in the bond issuance. How therisks are shared between them will be critical to theeffectiveness of the mechanism." Jiju Vidyadharan, Director for funds and fixed incomeservices at Crisil, said the gates of corporate bond markethave been opened to global investors by giving them directaccess to stock exchanges and the OTC segment as the movewill reduce their transaction costs and provide liquiditythrough a larger number of counter-parties. On letting banks issue masala bonds, he said this willlower borrowing costs over the medium to long term, but warnedthat given the lower ratings for these bonds, it may not bepositive in the short term. PTI BEN RSYARDJMF