Some have applauded the move and stated it as a market disciplinary measure. They perceive it as a measure to boost credit offtake from banks resulting in a shift of assets from the investment portfolio to credit portfolio.
Even if a bank prefers to subscribe to bonds, it should happen within the same prudential framework as that of the credit delivery, they said.
They feel that the recent guidelines will ensure monitoring of bond issue proceeds more stringent unlike what used to happen in private placement.
A private placement is the market where any issuer can float a bond with mutual understanding of the issuer and banker. There is no requirement of a prospectus or offer document, rating or listing. In the secondary market, these bonds were traded as negotiated off-market deals.
Bankers feel the shift of investors from bond to credit market will mostly see an influx of second-rung AA or AA- corporates.
This is because, these corporates could manage better rates in the bond market, since as based on PLR, the banks were charging very high rates for giving credit.
At present, with the need for rating and listing, the cost of issuing a bond will substantially go up. Triple-A corporates, they feel, will continue to approach the bond market as pricing is not a problem for them.
This is because, these issues are mostly rated and prices fetched by them do not vary much either in bonds or loans as they usually get sub-PLR loans.
On the other hand, trading banks with not much asset base seems to be a worried lot. According them, it is unfair on the part of the regulator to kill the private placement market which has been approved under the Companies Act.
