CORPORATE bond issuance is likely to remain muted witnessing 4-5 per cent growth this fiscal to touch Rs 41.42 lakh crore on rising coupon rates, despite the drawdown more than doubling in the second quarter, a report said.

Bond sales more than doubled to Rs 2.1 lakh crore in the second quarter from the first quarter, when it was at a multi-year quarterly low of Rs 1 lakh crore, as banks issued bonds worth an all-time high of Rs 53,900 crore, and NBFCs, traditionally largest players in the market, issuing securities worth Rs 1.1 lakh crore in Q2, according to an analysis by Icra Ratings.

Non-banking lenders have remained the largest issuers of bonds with a share of 47 per cent in the first half, followed by corporates and banks at 33 and 20 per cent, respectively, down from 50, 40 and 10 per cent, respectively from H1FY22, the report said. Thanks to bumper sales in Q2, the overall bond issuances rose to Rs 3.3 lakh crore in the first half, and the agency expects Rs 3.7-4.2 lakh crore sales in H2 FY23, marginally higher than the year-ago period, taking the volume of outstanding bonds to Rs 41-42 lakh crore by March 2023.

However, this translates into a muted on-year growth of just 4-5 per cent, net of redemptions, with the incremental issuance rising by Rs 7-7.5 lakh crore, up from Rs 6.8 lakh crore in FY22. The agency attributes the muted volume growth to the rising interest rate regime, which will force issuers to offer higher coupon rates/higher yields which may lead to increased appetite for investors.

The agency expects the 10-year G-Sec (Government securities) yields to harden to 7.7 percent short-term and remain between 7.3 and 7.7 per cent long term, which will also lead to higher yieldsf from corporate bonds.

Even as domestic bond issuances more than doubled in Q2, external commercial borrowings (ECBs) remained subdued due to rising funding costs overseas. During the first five months of FY23, ECBs approvals sought from the Reserve Bank fell by 24 per cent to USD 8.3 billion. Given the larger increase in policy rates by central banks and the resultant jump in borrowing costs overseas, the all-in borrowing costs for domestic corporations have been higher than domestic funding costs and are likely to remain so near term.