A healthier system
With Basel III capital requirements looming, Indian banks are finally being forced to deal with stressed assets on their books. A full clean-up, however, is some way off.
The pivotal moment - India’s capital markets are approaching a pivotal moment. After Narendra Modi’s landslide election victory earlier this year, initial enthusiasm has begun to give way to lingering doubts that the new regime can deliver on its reform agenda.
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With Basel III capital requirements looming, Indian banks are finally being forced to deal with stressed assets on their books. A full clean-up, however, is some way off.
A Triple A rating for a deeply subordinated issue of Tier 1 bank capital has underlined the significance attached to credit ratings in India’s domestic debt market.
Things are looking up for project lending after reforms have made it easier for banks to deal with failing projects and lend at longer tenors.
After a cautious 2013, renewed risk appetite is driving down offshore loan pricing and luring more Indian borrowers to the international markets.
Global rupee bonds, offshore settlements and rising international interest have all added some welcome energy to India’s domestic debt markets. However, there is far more to be done.
A reduction in withholding tax rates has opened the door for more Indian companies to sell international bonds. After a promising first wave of financings from lower-rated private sector issuers, will the party continue?
India’s new government has pledged to revive infrastructure investment, but much will depend on shifting the funding requirements beyond the capital-constrained banking sector.
The introduction of real estate investment trusts, simplified tax rules and a bigger privatisation pipeline have all underlined a new determination to reform and reinvigorate India’s equity capital markets.
Offerings of subordinated bonds from the banking sector promise to keep India’s capital markets busy for years. However, the path towards full Basel III compliance is far from straightforward.
India’s new pro-reform prime minister has overseen a rebound in investor confidence, but is there substance behind the hype? Can Narendra Modi make his mark on India’s notoriously slow-moving bureaucracy?