Shashikant Rathi, Vice-President and Head of Treasury and Markets at Axis Bank, who has been leading India's local bond underwriting business for more than a decade, has now warned that the industry may be facing its biggest challenge since the Lehman Brothers crisis in 2008.
Bond underwriters help companies raise funds by selling debt securities. Developments like the series of defaults by Infrastructure Lending & Financial Services (IL&FS) and the new electronic bidding platform have caused disruptions in the Rs 7.56 lakh crore market.
The new electronic platform approved last year enables investors to place buy orders for any issuer without the need of placing the order via a broker.
Rupee corporate bonds usually fetch the highest fees, but their sales fell this quarter to a 2016 low. Rathi told Bloomberg that the market is in complete chaos. "I have not seen such a crisis since the 2008 Lehman bankruptcy," he said.
The Reserve Bank of India (RBI) announced a 0.25 percent rate cut at its February monetary policy meet, and there is an expectation of further easing as early as April, which, however, did not help lower funding costs. Rathi said the market will settle and issuances will pick-up only after the general elections scheduled for April-May.
The government's attempt to grow the corporate bond market is facing troubles, with Rathi sustaining the business through his personal long-standing relationships in the market.
The government is trying to change the course of the market. From April, companies with outstanding long-term borrowings of Rs 100 crore and a credit rating of 'AA and above' will have to compulsorily raise 25 percent of their debt from the bond market.
Rupee bond sales in 2019 have seen a steady 15 percent rise, but this is not beneficial to those like Rathi as issuances by state-run firms don't pay underwriting fees, the report said.
"Issuers still need arrangers as we are the bankers who can give them a firm commitment, advice on the right borrowing level and help market-making," Rathi said.
Despite these problems, Rathi's deals are high-value. "I am a conservative risk taker. I will not take undue risk and end to change my strategies as the need of the hour is," he said. With the help of his exhaustive database, he now aims to make Axis Bank among the top three arrangers for Indian corporate issuers selling foreign currency bonds.
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