Kotak Director Kashyap Pushes Shift from Loans to Bonds

Paritosh Kashyap stated that Indian corporate borrowing must move from bank loans to the bond market. This shift allows banks to reduce direct lending exposure and churn their portfolios effectively.

Kashyap, a Kotak Mahindra Bank director, said banks remain the primary capital source for most companies. He noted that only AAA and AA-plus rated firms typically access the capital market today.

Regulatory Barriers Limit Bond Market Access

Long-term investors like pension funds are barred from buying securities rated below AA. This restriction forces companies to rely on expensive bank loans for their financing needs.

Kashyap suggested banks should underwrite bonds and then downsell them to other investors. This approach creates a more dynamic and liquid debt market for Indian corporates.

Credit Substitutes Boost Kotak Q1 Growth

Kotak Mahindra Bank held Rs.43,291 crore in credit substitutes by June. This amount accounted for 7.6% of total customer assets, up from 6.9% a year ago.

These investments added 100 basis points to the bank's first-quarter credit growth. Kashyap noted that investing in commercial paper is more economical than direct lending.

Corporate Bond Market Lags Global Peers

Corporate bonds account for roughly 21% of India's total debt market. This figure is substantially lower than the 36% share seen in China.

TradingView reports that outstanding corporate bonds stood at Rs.60.6 trillion in July. Total bank credit reached Rs.220.8 trillion, highlighting the continued reliance on bank financing.