RBI annual report: FPI investment in outstanding corporate bonds decline to Rs 1.04 lakh crore

FPI investment in outstanding corporate bonds decline to Rs 1.04 lakh cr as on March 2023: RBI annual report

Investments by foreign portfolio investors (FPI) in outstanding stock of corporate bonds decreased to Rs 1.04 lakh crore at end-March 2023, from Rs 1.21 lakh crore a year back, shows the Reserve Bank of India (RBI) annual report.

Consequently, utilisation of the approved limit by FPIs declined to 15.52 percent from 19.94 percent during the last one year. In 2022-23, primary corporate bond issuances increased in the domestic market, while overseas bond issuances moderated.

According to the report, domestic corporate bond issuances increased to Rs 7.6 lakh crore during 2022-23 from Rs 6 lakh crore during the previous financial year.

Private placements remained the preferred channel for corporates, accounting for 98.8 per cent of total resources mobilised through the bond market.

The size of outstanding corporate bonds increased by 4.6 percent on-year to Rs 42 lakh crore at end-March 2023, report said.

Yields

Corporate bond yields hardened during 2022-23 tracking the rise in benchmark government bond yields and widening of credit spreads.

As per report, the monthly average yield on AAA-rated 3-year bonds of public sector undertakings (PSUs), financial institutions (FIs) and banks hardened by 193 basis points (bps) while those on NBFCs and corporates hardened by 215 bps and 220 bps, respectively, in March 2023 vis-àvis March 2022.

One basis point is one hundredth of percentage point.

The monthly average yield on AAA-rated 3-year bonds stood at 7.75 per cent for PSUs, FIs and banks; 8.12 per cent for NBFCs; and 8.07 per cent for corporates in March 2023.

Risk premium

During 2022-23, the monthly average risk premium or spread on AAA-rated 3-year bonds (over 3-year G-sec) increased from 21 bps to 36 bps for PSUs, FIs and banks; 35 bps to 73 bps for NBFCs and 25 bps to 68 bps for corporates.

Spread is difference between interest rates of two securities.

The widening of spreads was visible across tenures and rating segments of corporate bonds.