The Reserve Bank of India (RBI) killed two birds with one stone through the measures it announced on Thursday under the banner of development and deepening of the corporate bond market.

Through them, RBI ring-fenced the banking sector from large companies, currently an unloved bunch given that many are not paying back money they owe bankers.

The regulator also silenced the long-standing criticism that it is not doing enough to deepen the corporate bond market.

While banks will benefit in the long run, ironically, they will be the biggest losers immediately.

But there are clear winners, too.

So, who wins and who loses when the nuts and bolts of the measures begin falling into place?

Credit rating agencies: These are the clear winners. As more and more firms begin visiting the bond market, they will need their bonds to be rated by credit rating companies. Also, exposure of banks towards firms and non-banking financial companies above 200 crore, if unrated, will attract a risk weight of 150%. This means banks will chase clients to get their debt rated. Business will boom for rating agencies. Investors have already taken note and shares of rating firms such as ICRA, CRISIL and Credit Analysis and Research Ltd surged on Friday.

‘AAA’ rated corporates: Top-rated credit will always get the best price. In this case, asking such firms to move to the bond market at a time when bank loan rates are higher than bond yields benefits them immensely. A top-rated firm can raise five-year money through bonds around 7.6% while borrowing from a bank could cost it at least 9%. Many have already recognized this and have regularized their visits to the corporate bond market so that when bond yields begin losing their edge over loan rates, the gilt-edged issuers still retain their pricing heft.

Foreign portfolio investors (FPIs): FPIs will find it easier to trade in corporate bonds because of the direct access given to them now. Having removed the need for middlemen a.k.a. banks and brokers, FPIs will find their cost of trading come down and, thus, returns going up.

Indian banks: By far, the biggest losers will be banks and they will have to forsake earnings at multiple levels. Firstly, there will be loss of business to the bond market as firms will move from bank loans to issuing paper. Banks wanting to retain good clients and willing to invest in bonds will have to settle for tighter spreads as bond yields are at least 150 basis points lower than loan rates currently. State Bank of India (SBI) is already doing it. SBI invested 25,000 crore in bonds in the June quarter to retain its top clients. Stepping up to competition and bringing down loan rates will again result in loss of margins for banks. Banks willing to give partial credit enhancements to low-rated firms will be taking extra risk on their books.

Low-rated firms: Granted that allowing banks to give a higher partial credit enhancement of 50% of issue size will make it easier for low-rated firms to get investors. But a partial credit enhancement to boost credit rating comes at a price as the banks will charge a fee. Also, once better rated firms flood the bond market and begin cornering investors, lower rated firms will find it even more difficult to attract buyers. Ritesh Jain, chief investment officer at Tata Asset Management, believes poorly rated large borrowers would find it difficult to tap incremental funds. As Sujata Guhathakurta, senior executive vice-president and head of debt capital markets at Kotak Mahindra Bank, put it: “It is going to be an expensive affair for low-rated firms. Life has not changed for them."

It is clear that the central bank doesn’t want banks to shoulder the entire load of funding India Inc. anymore. But, will the plan of pushing companies to bonds reduce the risks to the banking sector? The answer to that remains to be seen.