Issuance of covered bonds spikes 5 times to ₹2,200 crore in FY21

  • The covered bonds have seen improved acceptance in the Indian market mainly in H2FY21 as it provides a “dual recourse” benefit to the investor, i.e. the repayment obligation has to be met by the entity and in case of failure to do so, by a pool of assets assigned to a trust.

Livemint
First Published24 Jun 2021, 03:48 PM IST
These bonds have been issued so far by non-banking financial corporations — nine in FY2021 compared to two in FY2020.. Photo: iStockphoto
These bonds have been issued so far by non-banking financial corporations — nine in FY2021 compared to two in FY2020.. Photo: iStockphoto

Domestic issuances of covered bond witnessed a sharp increase to about 2,220 crore in the financial year against 400 crore seen in the preceding fiscal, according to ICRA Ltd, as high net-worth individuals (HNIs) and family wealth offices looked for better returns amid low-interest rate regime.

Covered bonds are essentially bankruptcy-protected products, as the issuer keeps an exclusive pool of loans as security to these bonds.

These bonds have been issued so far by non-banking financial corporations (NBFCs) — nine in FY2021 compared to two in FY2020.

In India, the domestic market for covered bonds is still in the nascent stages with the first issuance seen in FY2019. This product, however, has been a well-accepted financing tool in the western markets, especially in Europe, for many decades and has also seen a growing popularity in some Asian countries such as Singapore and Japan.

.

As per the ICRA's note, the covered bonds have seen improved acceptance in the Indian market mainly in H2FY21 as it provides a “dual recourse” benefit to the investor, i.e. the repayment obligation has to be met by the entity and in case of failure to do so, by a pool of assets assigned to a trust.

There have been 12 NBFCs issue covered bonds in the domestic market so far with about 75% of such issuances done by entities having their credit ratings in the single A category, while the majority of the covered bond issuances (almost two-thirds) have been in the form of market-linked debentures so far.

“Through the covered bond structures, the entities are able to reduce the risks for the investors by providing an exclusive cover pool of assets assigned to a trust thereby helping them improve the credit rating on such covered bonds to AA or AAA rating categories,” said Abhishek Dafria, vice-president and group head — structured finance ratings at ICRA.

“Issuers have benefitted from lower coupon rates on the covered bond issuances due to the higher rating with coupon reduction seen in the range of 0.5-1.25%. However, the coupon rates still remain higher than the benchmark yield for the enhanced rating category due to the new nature of the product and limited market size,” he added.

The rating agency expects the premiums to gradually decline with increase in the size of the covered bond market through better stakeholder awareness and wider investor participation.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:24 Jun 2021, 03:48 PM IST
HomeMarketsIssuance of covered bonds spikes 5 times to ₹2,200 crore in FY21

Most Active Stocks

Tata Steel

167.05
03:57 PM | 16 JUL 2024
0.25 (0.15%)

Oil & Natural Gas Corporation

322.40
03:58 PM | 16 JUL 2024
-0.15 (-0.05%)

Bandhan Bank

198.30
03:41 PM | 16 JUL 2024
2.95 (1.51%)

Coal India

512.35
03:59 PM | 16 JUL 2024
14.4 (2.89%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Natco Pharma

1,281.05
03:59 PM | 16 JUL 2024
73.2 (6.06%)

Century Textiles & Industries

2,217.55
03:48 PM | 16 JUL 2024
116.85 (5.56%)

Tata Teleservices Maharashtra

81.33
03:54 PM | 16 JUL 2024
4.23 (5.49%)

India Cements

323.05
03:55 PM | 16 JUL 2024
15.8 (5.14%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    75,246.00928.00
    Chennai
    75,099.00344.00
    Delhi
    74,806.00-460.00
    Kolkata
    75,466.00419.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.76/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumInstant LoanMint Shorts