T N Arun Kumar

T N Arun Kumar

Executive Director, CARE Ratings

  1. What has been the experience so far with attempts to develop alternative sources of financing (beyond commercial banks) - bonds, InvITs, IDFs, etc.?
    The regulators have been encouraging development of bond market for two reasons - the banks were increasingly getting choked up and secondly as a means to derisk the banking system. Concrete measures to give a thrust to the bond market were suggested by the Khan Committee which were later adopted by RBI. The Large exposure framework of RBI and recent budget announcement to have 25% of incremental borrowings through bonds would help, though finer details on how this is going to be achieved are yet to be worked out. The promulgation of IBC is expected to be the major game changer as the bankruptcy law would aim towards enhancing the ‘recovery given default’ which would be boost to deepening of bond markets.

    There were a few InvITs which hit the market but suffered from a perception gap – they were perceived as a product for capital gains (like equity shares) rather than an yield product. Only when the principle that it is an income product is clearly understood will we see InvITs actualy making a mark. Nevertheless, this is a tremendous tool for unlocking of capital for infra developers and would help in creation of new infrastructure in an efficient manner.

    IDFs: There has been significant activity in the last couple of years of formation and institutionalization of IDFs. The product features are demonstrated to be able to support high quality assets at a relatively low cost of funds. However, this funding mechanism has been constrained by lack of suitable assets as well as sufficient interest from overseas funds.

  2. Which sources hold the most promise given the Indian scenario?
    In terms of gross volumes clearly we are seeing bonds holding the most promise. We do not see a large scale conversion as such from bank loans to bonds but given the tepid pace of bank credit growth (other than retail), incremental growth in debt market would be expected through bonds. With increasing size of mutual funds and insurance companies’ corpus, large investments are expected in the infrastructure space. In this respect, bond markets are expected to the provide the required long term funding matching investor class with the asset needs.
  3. What are your views on “The Economic Times Infra Focus Summit” and how important do you to feel is the need of organizing such summits?
    India is a developing country with large requirement of infrastructure investments. This summit is an important platform to bring out a meaningful dialogue among various participants in the system so as to understand the shortcomings and bring out solutions to such shortcomings. It is no doubt important for us to have such summits organized so that key stakeholders express their views which, if escalated to the policy makers, would be paving a way forward in a meaningful manner.