India boom set to drive private credit and bond expansion

New Delhi: Talk with anyone in international finance now, and the discussion will sooner or later turn to India. The country's bonds are being added to global indexes, drawing some of the market's biggest fund managers who are betting on strong economic growth.

And Prime Minister Narendra Modi's ambitions to fashion a developed nation by 2047 - India's centennial as an independent country - has some of the world's most deep-pocketed investment firms lining up to get a piece of the action. They're betting the transformation will inevitably lean heavily on the country's developing credit market.

But it's a story fraught with risks. India need only look north to China to see what can go wrong and to understand the bumps it may hit along the way.

Bloomberg News gathered some of the most important names in India's financial market on Friday in Mumbai to ascertain the role that credit will play in building Modi's Road to 2047, as well as who the winners might be along the way and what could happen if things veer off course.

Need to tap foreign capital

The country will need to tap foreign capital and open up markets further as it develops, Reserve Bank of India Governor Shaktikanta Das said in an interview at the India Credit Forum.

One obstacle facing India is the perception that its markets are overly bureaucratic. Ananth Narayan, who looks after market regulation at the Securities and Exchange Board of India, told the forum he's open to suggestions about how the regulatory burden on foreign investors can be reduced.

A major opportunity for overseas capital will be funding infrastructure and the companies involved in its construction, in part because the corporate bond market isn't deep enough at present. More measures to enable its expansion are a work in progress, Das said.

Traditional lenders are somewhat constrained amid a struggle to increase deposits as savers instead flock to a booming stock market, with the NIFTY 50 gaining about 28% over the past year, including dividends.

Boom in private credit

That dynamic is creating opportunities for local players in India's private credit market, which is headed for its first $10 billion year. It's also drawn BlackRock Inc., which plans to tap direct lending opportunities through a venture with billionaire Mukesh Ambani's Jio Financial Services Ltd.

There will be a boom in private credit in the country over the coming years, said Prasanna Balachander, group head for global market sales, trading and research at ICICI Bank Ltd. India needs to make more debt available to high-yield companies, he said.

For now, watchdogs remain somewhat wary of the asset class.

"At a global level, I think private credit is increasingly posing certain risks and I think every central bank and regulator should be looking into it," Das said.

The RBI has urged shadow lenders to put in place robust risk mitigating systems like assessing credit worthiness of individual borrowers in a more comprehensive manner. The central bank also tightened regulations late last year, which slowed bank lending to those non-bank financial institutions.

The RBI is watching over the credit market very closely, said Das. "When there's a moment, when necessary, we take action."