Milind Kamble.docx

A PROJECT ON “DEBT MARKET & INSTRUMENTS’’

Submitted to University Of Mumbai For Partial Completion Of Degree Of Bachelor Of Commerce (FINANCIAL MARKET ) Semester VI 2018-19 Submitted By: Mr :- Milind Ishwar Kamble Roll No.339 Under the Guidance of Professor: Devendra Vyas

Uttari Bharat Sabha’s RAMANAND ARYA D.A.V. COLLEGE DATAR COLONY BHANDUP (E) , MUMBAI- 400042. March, 2018-19

1

A PROJECT ON “DEBT MARKET & INSTRUMENTS’’

Submitted to University Of Mumbai For Partial Completion Of Degree Of Bachelor Of Commerce (FINANCIAL MARKET) Semester VI 2018-19 Submitted By: Mr :- Milind Ishwar Kamble Roll No.339 Under the Guidance of Professor: Devendra Vyas

Uttari Bharat Sabha’s RAMANAND ARYA D.A.V. COLLEGE DATAR COLONY BHANDUP (E) , MUMBAI- 400042. March, 2018-19

2

Uttari Bharat Sabha’s RAMANAND ARYA D.A.V. COLLEGE DATAR COLONY BHANDUP (E) , MUMBAI- 400042. 2018-19

CERTIFICATE This is to certify that Mr. Milind Ishwar Kamble Roll No. 339 have worked and duly completed his project work for the degree of Bachelor of Commerce (FINANCIAL MARKET) under the faculty of commerce in the subject of management and his project is entitled,: Prof Devendra

Vyas under the

supervision. I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted previously for any degree of diploma of any University. It is his own work and facts reported by his personal findings and investigation. Date -____________

Course Co-coordinator

Principal

Mrs.Chandrakala Srivastav

Dr. Ajay Bhamare

Project Guide / Internal Examiner

External Examiner

3

Declaration by Learner

I the undersigned Mr. Milind Ishwar Kamble here by, declare that the work embodied in this project work “DEBT MARKET & INSTRUMENTS’’forms my own contribution to the research work carried out under the guidance of Mr. Devendra Vyas

is a result of my own research work and as not been previously submitted to any other University for any other Degree / Diploma to this or any other University. Wherever reference has been made to previous work of others, it has been clearly indicated as such and included in the bibliography. I, here by further declare that all information of this document has been obtained and presented in accordance with acedamic rules and ethical conduct. Name & Signature of the learner

_________________ Certified By Name & Signature of the Guiding Professor

Mr.Devendra Vyas

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Acknowledgement To list who all have helped me is difficult because they are so numerous and the depth is so enormous. I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion of this project. I take this opportunity to thank the University of Mumbai for giving me chance to do this project. I would like to thank my Principal, Mr. Ajay M Bhamre for providing the necessary facilities required for completion of this project. I take this opportunity to thank our Coordinator Mrs.Chandrakala Shrivastava for her moral support and guidance. I would also like to express my sincere gratitude towards my project guide Mr/Mrs. Devendra Vyas. whose guidance and care made the project successful. I would like to thank College Library, for having provided various reference books and magazines related to my project. Lastly, I would like to thank each and every person who directly and indirectly helped me in the completion of the project especially my parents and peers who supported me throughout my project.

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INDEX

Page.no

CHAPTER – 1

07

1.1

INTRODUCTION

1.2

OBJECTIVE OF THE STUDY

CHAPTER – 2

13

CHAPTER – 3

29

2.1 2.2 2.3

3.1

RESEARCH METHODLOGY

CHAPTER – 4 4.1

ANALYSIS OF DATA

4.2

DATA ANALYSIS & DATA INTERPREATION

31

4.3 4.4 4.5 4.6

CHAPTER – 5 5.1

61

REVIEW OF LITRACTURE

CHAPTER – 6 6.1

68

RECOMMANDATION & SUGGESTION

CHAPTER –7 7.1

69

CONCLUSION

CHAPTER –8 8.1

70

REFREENCE

6

Chapter - 1 Introduction :The debt market in India consists of mainly two categories—the government securities or the GSec markets comprising central government and state government securities, and the corporate bond market. In order to finance its fiscal deficit,the government floats fixed income instruments and borrows money by issuing G-Secs that are sovereign securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The corporate bond market (also known as the non-Gsec market) consists of financial institutions (FI) bonds, public sector units (PSU) bonds, and corporatebonds/debentures.The G-secs are the most dominant category of debt markets and form a major part of the market in terms of outstanding issues, market capitalization, and trading value. It sets a benchmark for the rest of the market. The market for debtderivatives have not yet developed appreciably, although a market for OTC derivatives in interest rate products exists.The exchange-traded interest rate derivatives that were introduced recently are debt instruments; this market is currentlysmall, and would gradually pick up in the years to come.

Objective OF DEBT INSTRUMENT Repayment There are three main ways repayment may be structured: the entire principal balance may be due at the maturity of the loan; the entire principal balance may be amortized over the term of the loan; or the loan may partially amortized during its term, with the remaining principal due as a "balloon payment" at maturity. Amortization structures are common in mortgages and credit cards.

7

Payday loan businesses lend money to customers, who then owe a debt to the payday loan company. Finance

8

Markets[show] Instruments[show] Corporate[show] Personal[show] Public[show] Banking[show] Regulation · Financial law[show] Economic history[show]

●

v

●

t

●

e Debt is when something, usually money, is owed by one party, the borrower or debtor, to a second party, the lender or creditor. Debt is a deferred payment, or series of payments, that is owed in the future, which is what differentiates it from an immediate purchase. The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest.[1] Loans, bonds, notes, and mortgages are all types of debt. The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.[2]For example, in Western cultures, a person who has been helped by a second person is sometimes said to owe a "debt of gratitude" to the second person.

9

Interest Interest is the fee paid by the borrower to the lender. Interest is calculated as a percentage of the outstanding principal, which percentage is known as an interest rate, and is generally paid periodically at intervals, such as monthly or semi-annually. Interest rates may be fixed or floating. In floating-rate structures, the rate of interest that the borrower pays during each time period is tied to a benchmark such as LIBOR or, in the case of inflation-indexed bonds, inflation. There are many different conventions for calculating interest. Depending on the terms of the debt, compound interest may accumulate at a specific interval. In addition, different day count conventions exist, for example, sometimes each month is considered to have exactly thirty days, such that the interest payment due is the same in each calendar month. The annual percentage rate (APR) is a standardized way to calculate and compare interest rates on an annual basis. Quoting interest rates using APR is required by regulation for most loans to individuals in the United States and United Kingdom. For some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid. This may be because upfront fees or points are charged, or because the loan has been structured to be sharia-compliant. The additional principal due at the end of the term has the same economic effect as a higher interest rate. Riskier borrowers must generally pay higher rates of interest to compensate lenders for taking on the additional risk of default. Debt investors assess the risk of default prior to making a loan, for example through credit scores and corporate and sovereign ratings.

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Chapter - 2

Types of borrowers Individuals Common types of debt owed by individuals and households include mortgage loans, car loans, credit card debt, and income taxes. For individuals, debt is a means of using anticipated income and future purchasing power in the present before it has actually been earned. Commonly, people in industrialized nations use consumer debt to purchase houses, cars and other things too expensive to buy with cash on hand. People are more likely to spend more and get into debt when they use credit cards vs. cash for buying products and services.[6][7][8][9][10] This is primarily because of the transparency effect and consumer's "pain of paying."[8][10] The transparency effect refers to the fact that the further you are from cash (as in a credit card or another form of payment), the less transparent it is and the less you remember how much you spent.[10] The less transparent or further away from cash, the form of payment employed is, the less an individual feels the “pain of paying” and thus is likely to spend more.[8] Furthermore, the differing physical appearance/form that credit cards have from cash may cause them to be viewed as “monopoly” money vs. real money, luring individuals to spend more money than they would if they only had cash available.[9][11] Besides these more formal debts, private individuals also lend informally to other people, mostly relatives or friends. One reason for such informal debts is that many people, in particular those who are poor, have no access to affordable credit. Such debts can cause problems when they are not paid back according to expectations of the lending household. In 2011, 8 percent of people in the European Union reported their households has been in arrears, that is, unable to pay as 11

scheduled "payments related to informal loans from friends or relatives not living in your household

Businesses A company may use various kinds of debt to finance its operations as a part of its overall corporate finance strategy. A term loan is the simplest form of corporate debt. It consists of an agreement to lend a fixed amount of money, called the principal sum or principal, for a fixed period of time, with this amount to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date, or may be paid periodically in the interval, such as annually or monthly. Such loans are also colloquially called "bullet loans", particularly if there is only a single payment at the end – the "bullet" – without a "stream" of interest payments during the life of the loan. A revenue-based financing loan comes with a fixed repayment target that is reached over a period of several years. This type of loan generally comes with a repayment amount of 1.5 to 2.5 times the principle loan. Repayment periods are flexible; businesses can pay back the agreedupon amount sooner, if possible, or later. In addition, business owners do not sell equity or relinquish control when using revenue-based financing. Lenders that provide revenue-based financing work more closely with businesses than bank lenders, but take a more hands-off approach than private equity investors A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan. A syndicated loan is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as arrangers. Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity. A company may also issue bonds, which are debt securities. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond's life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond.

12

A letter of credit or LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, storm, water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and traveler's cheque. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and a document proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin. Companies also use debt in many ways to leverage the investment made in their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier.

Government :Governments issue debt to pay for ongoing expenses as well as major capital projects. Government debt may be issued by sovereign states as well as by local governments, sometimes known as municipalities. Debt issued by the government of the United States, called Treasuries, serves as a reference point for all other debt. There are deep, transparent, liquid, and open capital markets for Treasuries.[14] Furthermore, Treasuries are issued in a wide variety of maturities, from one day to thirty years, which facilitates comparing the interest rates on other debt to a security of comparable maturity. In finance, the theoretical "Risk-free rate" rate is often approximated by practitioners by using the current yield a Treasury of the same duration. 13

The overall level of indebtedness by a government is typically shown as a ratio of debt-to-GDP. This ratio helps to assess the speed of changes in government indebtedness and the size of the debt due.

Income metrics The debt service coverage ratio is the ratio of income available to the amount of debt service due (including both interest and principal amortization, if any). The higher the debt service coverage ratio, the more income is available to pay debt service, and the easier and lower-cost it will be for a borrower to obtain financing. Different debt markets have somewhat different conventions in terminology and calculations for income-related metrics. For example, in mortgage lending in the United States, a debt-to-income ratio typically includes the cost of mortgage payments as well as insurance and property tax, divided by a consumer's monthly income. A "front-end ratio" of 28% or below, together with a "back-end ratio" (including required payments on non-housing debt as well) of 36% or below is also required to be eligible for a conforming loan.

Value metrics The loan-to-value ratio is the ratio of the total amount of the loan to the total value of the collateral securing the loan. For example, in mortgage lending in the United States, the loan-to-value concept is most commonly expressed as a "down payment." A 20% down payment is equivalent to an 80% loan to value. With home purchases, value may be assessed using the agreed-upon purchase price, and/or an appraisal.

Collateral and recourse A debt obligation is considered secured if creditors have recourse to specific collateral. Collateral may include claims on tax receipts (in the case of a government), specific assets (in the case of a

14

company) or a home (in the case of a consumer). Unsecured debt comprises financial obligations for which creditors do not have recourse to the assets of the borrower to satisfy their claims.

Role of rating agencies Credit bureaus collect information about the borrowing and repayment history of consumers. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers. In the United States, the primary credit bureaus are Equifax, Experian, and Trans Union. Debts owed by governments and private corporations may be rated by rating agencies, such as Moody's, Standard & Poor's, Fitch Ratings, and A. M. Best. The government or company itself will also be given its own separate rating. These agencies assess the ability of the debtor to honor his obligations and accordingly give him or her

a credit rating. Moody's uses the

letters Aaa Aa A Baa B a B Caa Ca C, where ratings Aa-Caa are qualified by numbers 1-3. S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers. Thus a government or corporation with a high rating would have Aaa rating. A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are considered junk or high-risk bonds. Their high risk of default (approximately 1.6 percent for Ba ) is compensated by higher interest payments. Bad Debt is a loan that cannot (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of debt are frequently repackaged and sold below face value. Buying junk bonds is seen as a risky but potentially profitable investment.

Loans versus bonds Bonds are debt securities, tradeable on a bond market. A country's regulatory structure determines what qualifies as a security. For example, in North America, each security is uniquely identified

by

a CUSIP for

trading

and

settlement

purposes.

In

contrast, loans are

not securities and do not have CUSIPs (or the equivalent). Loans may be sold or acquired in certain circumstances, as when a bank syndicates a loan. 15

Loans can be turned into securities through the securitization process. In a securitization, a company sells a pool of assets to a securitization trust, and the securitization trust finances its purchase of the assets by selling securities to the market. For example, a trust may own a pool of home mortgages, and be financed by residential mortgage-backed securities. In this case, the asset-backed trust is a debt issuer of residential mortgage-backed securities.

Role of central banks Central banks, such as the U.S. Federal Reserve System, play a key role in the debt markets. Debt is normally denominated in a particular currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency.

Analysis of Debt Instrument

What is a Debt Instrument A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, debentures, certificates, mortgages, leases or other agreements between a lender and a borrower. These instruments provide a way for market participants to easily transfer the ownership of debt obligations from one party to another. BREAKING DOWN Debt Instrument 16

A debt instrument is legally enforceable evidence of a financial debt and the promise of timely repayment of the principal, plus any interest. The importance of a debt instrument is twofold. First, it makes the repayment of debt legally enforceable. Second, it increases the transferability of the obligation, giving it increased liquidity and giving creditors a means of trading these obligations on the market. Without debt instruments acting as a means of facilitating trading, debt would only be an obligation from one party to another. However, when a debt instrument is used as a trading means, debt obligations can be moved from one party to another quickly and efficiently. Debt instruments can be either long-term obligations or short-term obligations. Short-term debt instruments, both personal and corporate, come in the form of obligations expected to be repaid within one calendar year. Long-term debt instruments are obligations due in one year or more, normally repaid through periodic installment payments. Short-Term Debt Instruments From a personal finance perspective, short-term debt instruments come in the form of credit card bills, payday loans, car title loans and other consumer loans that have repayment terms of less than 12 months. If a person incurs a credit card bill of $1,000, the debt instrument is the agreement that outlines the obligated payment terms between the borrower and the lender. In corporate finance, short-term debt usually comes in the form of revolving lines of credit, loans that cover networking capital needs and Treasury bills. If for example, a corporation looks to cover six months of rent with a loan while it tries to raise venture funding, the loan is considered a short-term debt instrument. Long-Term Debt Instruments Long-term debt instruments in personal finance are usually mortgage payments or car loans. For example, if an individual consumer takes out a 30-year mortgage for $500,000, the mortgage agreement between the borrower and the mortgage bank is the long-term debt instrument. Compete Risk Free with $100,000 in Virtual Cash

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Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need. What are the differences between debt and equity markets?

First, some definitions The debt market is the market where debt instruments are traded. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments include bonds (government or corporate) and mortgages. The equity market (often referred to as the stock market) is the market for trading equity instruments. Stocks are securities that are a claim on the earnings and assets of a corporation (Mishkin 1998). An example of an equity instrument would be common stock shares, such as those traded on the New York Stock Exchange. How are debt instruments different from equity instruments? There are important differences between stocks and bonds. Let me highlight several of them: 1. Equity financing allows a company to acquire funds (often for investment) without incurring debt. On the other hand, issuing a bond does increase the debt burden of the bond issuer because contractual interest payments must be paid— unlike dividends, they cannot be reduced or suspended.

2. Those who purchase equity instruments (stocks) gain ownership of the business whose shares they hold (in other words, they gain the right to vote on the issues important to the firm). In addition,

equity

holders

have

claims

on

the

future

earnings

of

the

firm.

In contrast, bondholders do not gain ownership in the business or have any claims to the future profits of the borrower. The borrower’s only obligation is to repay the loan with interest.

18

3. Bonds are considered to be less risky investments for at least two reasons. First, bond market returns are less volatile than stock market returns. Second, should the company run into trouble, bondholders are paid first, before other expenses are paid. Shareholders are less likely to receive any compensation in this scenario. How large are these markets? It seems that the average person is much more aware of the equity (stock) market than of the debt market. Yet, the debt market is the much larger of the two. For example, in September 2005 (the most recent data available at the time this answer was written), about $218 billion of new corporate bonds were issued, as compared to slightly under $18 billion in new corporate stocks. Chart 1 compares new issues of corporate bonds and corporate stocks in the United States for the past ten years.

Another way to compare the size of the two markets is to think about total amounts of debt and equity instruments outstanding at the end of a particular period. According to “Flow of Funds” data of March 2006, published by the Board of Governors of the Federal Reserve System for the fourth quarter of 2005, there was approximately $34,818 billion in outstanding debt instruments 19

and about $18,199 billion in outstanding corporate equities. Thus, the size of the debt market as of the last quarter of 2005 was about twice that of the equity market. Why are these markets important? Both markets are of central importance to economic activity. The bond market is vital for economic activity because it is the market where interest rates are determined. Interest rates are important on a personal level, because they guide our decisions to save and to finance major purchases (such as houses, cars, and appliances, to give a few examples). From a macroeconomic standpoint, interest rates have an impact on consumer spending and on business investment. Chart 2 below shows interest rates on select bonds with different risk properties for the last 10 years. The chart compares interest rates on corporate AAA bonds (highest quality bonds) and Baa bonds (medium-quality bonds) and long-term Treasury bonds (considered to be risk-free interest rate). Another aspect to consider is the fact that many U.S. households hold their wealth in financial assets (see Table 1 below). According the data from “Survey of Consumer Finances” published by the Federal Reserve System, in 2004, 1.8% of U.S. households held bonds (down from 3% in 2001), and 20.7% of U.S. households held stocks (down from 21.3% in 2001). Table 1 shows financial asset ownership data for 2004. In addition to this direct ownership of stocks and bonds, it’s important to remember that there are households who hold these instruments indirectly—in retirement accounts, for instance (more than half of U.S. households held retirement accounts in 2001). Poor performance of equity and debt markets reduces wealth of households who hold stocks and bonds. This, in turn, reduces their spending (via the wealth effect), slowing down the economy

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The stock market is equally important for economic activity because it affects both investment spending and consumer spending decisions. The price of shares determines the amount of funds that a firm can raise by selling newly issued stock. That, in turn, will determine the amount of capital goods this firm can acquire and, ultimately, the volume of the firm’s production. Financial Markets bring together individuals who want to save money with other individuals or companies who want to raise money. The bond market and the stock market are the two most important types of financial markets. They provide capital through the issuing of bonds or stocks, respectively. Two fundamentally different approaches, that each have their own advantages and disadvantages. This will become apparent as we look at the difference between bond markets and stock markets below. The bond market is a financial market where participants can issue and trade bonds. Bonds are certificates of indebtedness of the issuer to the holder. They are a type of loan, where big corporations or governments act as the borrower and the general public acts as the lender (i.e. creditor). Hence, the sale of bonds is also referred to as debt finance. 21

Bonds have to be repaid once they reach their so-called date of maturity. Once the bond matures, the amount borrowed (i.e. the principal) has to be paid back to the lender. The length of time before this happens is called the bond’s term. The creditors expect to be paid interest in exchange for lending their money. This periodical payment is called the coupon. The coupon rate depends on the bond’s term and perceived risk. As with any investment, there is always a certain risk of default. In other words, there is a certain possibility that the borrower fails to meet their legal obligations (e.g. coupon payments or repayment of the principal). The probability that this happens is called the credit risk. In case of bankruptcy however, bondholders are in a relatively good position – according to the circumstances – because they are creditors and therefore repaid before shareholders. When corporations issue new bonds we speak of the primary market. Once these bonds are issued they can be bought and sold (i.e. traded) freely by participants in the market. This is called the secondary market, or aftermarket. The stock market is a financial market where participants can issue and trade stocks (i.e. shares). Stocks represent partial ownership in a company. Therefore, the sale of stocks is also referred to as equity finance. Because the owner of a stock is also partial owner of the company, they are entitled to a proportion of the firm’s profits. However, in the case of bankruptcy, shareholders will get their money back only after all debt (including bonds) is repaid. Unlike bonds, stocks don’t have a date of maturity, i.e. they generally don’t have to be repaid at a certain time. However, the shareholders still expect to be compensated for investing their money. As mentioned above, they are entitled to a proportion of the firm’s profits, which is referred to as a dividend. Dividends are usually paid once a year. In addition to that, shareholders can also profit from an increase in the company’s stock price. Stocks are traded on organized stock exchanges, like the New York Stock Exchange (i.e. Wall Street) or the London Stock Exchange. The prices at which they trade are defined by supply and demand. Ultimately, the price of a stock reflects people’s assumption of the company’s future profitability. Because of this, the stock market is often used as an indicator of future economic developments. There are hundreds of stock indices available to monitor the overall price levels in 22

any particular stock market. A stock index is usually calculated as a weighted average of the prices of certain stocks that are considered typical of that particular market. Popular examples of stock indices include the Dow Jones Index, the NIKKEI Index, the DAX, and many more. Financial Markets bring together individuals who want to save money with other individuals or companies who want to raise money. The bond market and the stock market are the two most important types of financial markets. The bond market allows participants to issue and trade bonds, i.e. certificates of indebtedness of the issuer to the holder (debt finance). Whereas the stock market is a financial market where participants can issue and trade stocks, i.e. partial ownership in a company (equity finance).

Debt

Market

in

Debt markets can essentially be broken down into three main groups: ●

Issuers,

●

Underwriters and

●

Purchasers

23

India

Like any other market, Indian debt markets too have participants who help in smooth and efficient

functioning

Participants

The

key

of

the

in

participants

debt

Indian

in

the

markets

in

debt

Indian

Debt

India.

markets

markets

are...

Central Government

The Central and the State Government need money to manage their short term and long term finances and fund budgetary deficits. Being the largest issuers in the Indian Debt markets, they raise

money

by

issuing

bonds

and

24

T-bill

of

different

maturities.

Reserve Bank of India (RBI)

As a banker to the government, the RBI has a key task of managing the borrowing program of the Government of India. It has the Money market and the G-Secs market under its purview. Apart from its regulatory role it also performs several other important functions such as controlling inflation (by managing policy / interest rates in the country), ensuring adequate credit at reasonable costs to various sectors of the economy, managing the foreign exchange reserves of the

country

and

ensuring

a

stable

currency

environment.

SEBI

The SEBI acts as the regulator for the corporate debt market and the bond market wherein the entities raise money from the public through public issue. The regulation comprises of manner in which the money is raised and tries to ensure a fair play for the retail investor. It forces the issuer to make the retail investor aware of the risks inherent in the investment, through its disclosure norms. SEBI also regulates Mutual Funds and the instruments in which these mutual funds can invest. Investment from Foreign Institutional Investors (FIIs) also falls under the SEBI's scanner.

Primary Dealers (PDs)

Primary Dealers (PDs) are market intermediaries appointed by RBI who underwrite and make market in government securities by providing two-way quotes, and have access to the call and repo

markets

for

funds.

Banks

Banks are the largest investors in the debt markets, particularly the government securities market due to SLR requirements. They are also the main participants in the call money and overnight 25

markets. They issue CDs and bonds in the debt markets and also arrange the CP issues of corporates.

The

other

participants

●

Financial Institutions

●

Mutual Funds

●

Provident & Pension Funds

●

Insurance Companies

●

Corporates

in

the

debt

Indian

markets

are…

While financial institutions and corporates issue short and long term fixed income instruments to meet their financial requirements. Insurance companies and Mutual Funds along with Provident & Pension Funds are also the other large investors in the Indian debt markets who invest significant amount mobilized from their investors. India Debt Market Debt market refers to the financial market where investors buy and sell debt securities, mostly in the form of bonds. These markets are important source of funds, especially in a developing economy like India. India debt market is one of the largest in Asia. Like all other countries, debt market in India is also considered a useful substitute to banking channels for finance. The most distinguishing feature of the debt instruments of Indian debt market is that the return is fixed. This means, returns are almost risk-free. This fixed return on the bond is often termed as the 'coupon rate' or the 'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a

fixed

interest

rate,

which

equals

26

to

the

coupon

rate.

Classification of Indian Debt Market Indian

debt

market

can

be

classified

into

two

categories:

Government Securities Market (G-Sec Market): It consists of central and state government securities. It means that, loans are being taken by the central and state government. It is also the most

dominant

category

in

the

India

debt

market.

Bond Market: It consists of Financial Institutions bonds , Corporate bonds and debentures and Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and

hence

remove

uncertainty

in

financial

costs.

Advantages :-

The biggest advantage of investing in Indian debt market is its assured returns. The returns that the market offer is almost risk-free (though there is always certain amount of risks, however the trend says that return is almost assured). Safer are the government securities. On the other hand, there are certain amounts of risks in the corporate, FI and PSU debt instruments. However, investors can take help from the credit rating agencies which rate those debt instruments. The interest

in

the

instruments

may

vary

depending

upon

the

ratings.

Another advantage of investing in India debt market is its high liquidity. Banks offer easy loans to

the

investors

against

government

securities.

Disadvantages :-

As there are several advantages of investing in India debt market, there are certain disadvantages as well. As the returns here are risk free, those are not as high as the equities market at the same 27

time. So, at one hand you are getting assured returns, but on the other hand, you are getting less return

at

the

same

time.

Retail participation is also very less here, though increased recently. There are also some issues of liquidity and price discovery as the retail debt market is not yet quite well developed.

Debt Instruments There are various types of debt instruments available that one can find in Indian debt market.

Government

Securities

It is the Reserve Bank of India that issues Government Securities or G-Secs on behalf of the Government of India. These securities have a maturity period of 1 to 30 years. G-Secs offer fixed interest rate, where interests are payable semi-annually. For shorter term, there are Treasury Bills or T-Bills, which are issued by the RBI for 91 days, 182 days and 364 days.

Corporate

Bonds

These bonds come from PSUs and private corporations and are offered for an extensive range of tenures up to 15 years. There are also some perpetual bonds. Comparing to G-Secs, corporate bonds carry higher risks, which depend upon the corporation, the industry where the corporation is currently operating, the current market conditions, and the rating of the corporation. However, these

bonds

Certificate

also

give

higher

of

returns

than

the

G-Secs.

Deposit

These are negotiable money market instruments. Certificate of Deposits (CDs), which usually offer higher returns than Bank term deposits, are issued in demat form and also as a Usance Promissory Notes. There are several institutions that can issue CDs. Banks can offer CDs which 28

have maturity between 7 days and 1 year. CDs from financial institutions have maturity between 1 and 3 years. There are some agencies like ICRA, FITCH, CARE, CRISIL etc. that offer ratings of CDs. CDs are available in the denominations of ` 1 Lac and in multiple of that.

Commercial

Papers

There are short term securities with maturity of 7 to 365 days. CPs are issued by corporate entities at a discount to face value. What is debt market instrument? A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, debentures, certificates, mortgages, leases or other agreements between a lender and a borrower. Understanding Indian Debt Capital Market The Indian debt market is a market meant for trading (i.e. buying or selling) fixed income instruments. Fixed income instruments could be securities issued by Central and State Governments, Municipal Corporations, Govt. Bodies or by private entities like financial institutions, banks, corporates, etc. Simply put, a bond/debt can be defined as a loan in which an investor is the lender. The issuer of the bond pays the investor interest (at a predetermined rate and schedule) in return for the amount invested. The Indian debt market offers a variety of debt instruments, offered by the Government and non-Government entities. The factors that are propelling the growth of the market are: ●

introduction of new instruments

●

increased liquidity

●

deregulation of interest rates

●

improved settlement systems 29

The debt market in India comprises broadly two segments, viz., ●

Government Securities Market and

●

Corporate Debt Market. The latter is further classified as Market for:

●

PSU Bonds and

●

Private Sector Bonds. The corporate bond market, broadly comprises of corporate sector raising debt through public issuance in capital market and also through private placement basis. MAJOR PLAYERS

●

State governments and Central government. The largest segment of the Indian Debt market consists of the Government of India securities where the daily trading volume is in excess of Rs.2000 crore, with instrument tenors ranging from short dated Treasury Bills to long dated securities extending upto 30 years.

●

Non-government entities like Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers, Corporate entities.

INSTRUMENTS

There are a variety of instruments offered in the debt market like: ●

MIBOR linked bonds. MIBOR (Mumbai Inter Bank Offered Rate) bonds are closely modeled on the LIBOR (London Inter Bank Offered Rate) bonds. Currently, Reuters and the National Stock Exchange (NSE), are the two calculating agents for the benchmark. The NSE MIBOR benchmark is the more popular of the two and is based on rates polled by NSE from a representative panel of 31 banks/institutions/primary dealers.

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●

Commercial Papers(CPs). These are short term unsecured promissory notes, generally issued by corporate entities.

●

Certificate of Deposits (CDs). These are issued by banks.

●

Treasury Bills. These are issued by Reserve Bank of India (RBI).

●

Medium- to long-term bonds. These are issued by corporate entities/financial institutions. They can feature fixed or floating rates.

●

Call money market. This represents overnight and term money between banks and institutions.

●

Repo transactions. These represent temporary sale with an agreement to buy back the securities at a future date at a specified price.

●

Collateralized Borrowing And Lending Obligation (CBLO). CBLOs were developed by the Clearing Corporation of India (CCIL) and Reserve Bank of India (RBI). It is a money market instrument that represents an obligation between a borrower and a lender as to the terms and conditions of the loan. The details of the CBLO include an obligation for the borrower to repay the debt at a specified future date and an expectation of the lender to receive the money on that future date, and they have a charge on the security that is held by the CCIL. CBLOs are used by those who are heavily restricted or have been phased out of the interbank call money market. The other instruments that are prevalent in the debt market are Debentures, Secured premium notes, Deep Discount Bonds, PSU Bonds / Tax-Free Bonds, Floating Rate Bonds, State Government Securities, STRIPS and Interest Rate Derivative products. RISKS The debt market features the usual risks associated with financial securities like:

●

Credit risk. While corporate papers carry credit risk due to changing business conditions, government securities are perceived to have zero credit risk. Credit Risk is the risk that the issuer will not pay the coupon income and/ or the maturity amount on the specified dates. Credit Ratings have been established by rating agencies to reflect their opinion of an issuer’s ability and willingness to do so.

●

Interest rate risk. Interest rate risk is present in all debt securities and depends on a variety of macroeconomic factors. Interest Rate Risk is the risk that interest rates may rise, causing a fall in value of traded debt instruments.

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●

Settlement risk. The risk that one party will fail to deliver the terms of a contract with another party at the time of settlement is called settlement risk.All debt securities are settled within the specified duration, excepting special cases like death of the holder, etc, in which case it may be delayed till all the required formalities are completed.

●

liquidity risk. The risk arising from the lack of possibility to either buy or sell a security quickly as per one’s requirement is called liquidity risk. Debt securities have minimum liquidity risk and can be easily bought and sold after due listing.

. Introduction of New Products - Development of Derivative Markets In our 2013 report, , swaps and derivatives markets, to effectively complement the cash bond markets. Over the last 4-5 years, significant developments have occurred in this regard, with the establishment of interest rate futures markets traded on the exchanges and the trading of INR interest rate derivatives introduced on the CCIL. Exchange now offers futures on 5, 10 and 13year G-Secs and 91-day treasury bills. These instruments are cash-settled and can be used for hedging the risk arising from interest rate movements as well as for trading. There have been significant developments in the Interest Rate Futures (IRF) market over the past few years with futures being introduced on the 5y and 15y on-the-run bonds in 2015 in addition to the future on 10y bonds. The near month maturity IRF on the 10y benchmark bond continues to be the most traded future and accounts for the majority of volumes. After a weak start of IRF market in 2003 there was a significant push from RBI to make the market more liquid and robust. The total value traded increased from January 2014 and continued to increase in 2015. However, the total value traded has decreased in 2016. Total Value Traded in NSE IRF Market (INR bil

7. Corporate Bonds: Evolution of the Secondary and Primary Markets While the corporate bond market is small as compared to the government bond market, the growth seen in this space is worth noting. Historically, corporates have primarily depended on banks for their sources of funding. With banks taking a back seat due to various issues like high cost of funds, NonPerforming Assets (NPAs), stress in the balance sheet, etc., better rated 32

corporates started tapping the bond markets because of the lower cost of funding in these markets. Lower deposit rates, the lack of tax free bonds, tax efficient return from debt funds ensured large flow of funds into their debt schemes. This phenomenon continued over the last few years and as a result we see much more liquid and vibrant credit markets. We have seen a substantial growth in the corporate bond market – over 35% Compound Annual Growth Rate (CAGR) in last 7 years. FY 2013-2014 was abnormal when RBI hiked overnight rates to defend the currency and most of the issuers went back to the loan markets. The issuance of corporate bonds in the year 2015-2016 was lower because of the absence of large power sector financing companies because of the implementation of the “Ujjwal DISCOM Assurance Yojana” (UDAY) scheme by the Government of India, whereby State Electricity Boards converted their loans to bonds. By way of further background, this scheme is aimed at the revival and revitalization of the distressed State Electricity Distribution Companies (the so-called DISCOMs). The recently concluded FY 2016-17 witnessed the highest ever total of funds raised through corporate bonds through private placement, totaling INR 7,035bn. These funds were raised by a total of 661 institutions and corporates. Also, according to Prime Database, total public corporate bond issuance through yearend March 2017 rose 51% yoy to USD 51bn. Total Debt Private Placements (INR billion) Year Amount % Change 8. Corporate Bonds: New Endeavours As mentioned above, the corporate sector relies too heavily on banks for lending and raising funds to finance their business going forward. Everyone, including the RBI, understands that developing a strong and sound corporate bond market will alleviate the pressure on banks and provide corporations an alternative way to finance themselves. Further, not only does a strong corporate bond market foster healthy competition, the transparency of corporate bond markets will also force corporations to respond directly to the concerns of investors and stakeholders. This will in turn facilitate the development of a deep corporate bond market which will improve the corporate governance, efficiency and discipline within the corporate sector. Given this, the Indian regulatory authorities have greatly increased incentives for corporate bond issuance. These include the granting of permission to banks to issue lower-rated bonds that are Basel 3 compliant (AT1 and Upper T1 & T2 issuance) to shore up capital, the liberalization of FPI limits to invest in domestic corporate bonds, creating a framework for institutional investors to invest 33

in real estate & infrastructure trusts and the introduction of offshore INR bonds or Masala bonds, described Market Developments Growth in Residential Mortgage Backed Securities (RMBS), Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDOs) fueled the rapid growth of the securitisation market through 2005, as new classes of investors and issuers gained confidence in the stability of and prospects for the further development of the market. Furthermore, investor familiarity with the underlying asset classes, stability in the performance of past pools and the relatively short tenor of issuances also helped boost the market. After a brief dip in 2006, caused by the tightening of capital requirements, strong growth in ABS and CDO volumes boosted the Indian securitization market through the first half of 2009, when the aftereffects of the global financial crisis did have a negative impact. Even so, the absence of transactions involving complex derivatives and CDS in the Indian context meant that Indian securitization volumes did stay relatively robust, in the immediate aftermath of the financial crisis. The structured issuance volumes have grown considerably in the last few years in India. ABS is the largest product class driven by the growing retail loan portfolio of banks and other Financial Institutions (FIs), investors’ familiarity with the underlying assets and the short maturity period of these loans. The MBS market has been rather slow in taking off despite a growing housing finance market due to the long maturity periods, lack of secondary market liquidity and the risk arising from prepayment/repricing of the underlying loan. During FY2014, the overall securitisation market (including rated bilateral transactions) in India shrunk further by 5% over the previous year, in value terms. The number of transactions was also lower by 4% in FY2013 than that in the previous fiscal year. While the number and volume of ABS transactions declined by about 14%, the number of RMBS transactions more than doubled in FY2014, (an increase of 75% in value terms). Issues and Recent Developments India’s growth is expected to remain stronger than the global average and more robust than the median for similarly rated sovereigns. India will have long-term funding needs which could be 34

provided by the securitisation market to finance housing, infrastructure and urbanization projects. The legal framework for securitisation is at a nascent stage in India as it is restricted to certain institutions namely, banks and financial institutions only. Amendments to the Securities Contracts Regulation (SCR) Act are certainly futuristic steps and well-deserved appreciation must be given towards these steps. It is hoped that in the future, more and more transactions may be included under the Act so that the market matures and reaches an advanced stage like the UK or the US, as this process will support economic growth. Development of the market for securitisation in India will need efforts of the Central Government, State Governments, RBI and SEBI, has permitted mutual funds to invest in these securities. To galvanize the market, FPIs can also be allowed to invest in a wide range securitised debt instruments – a process that has already begun. FPIs are already familiar with these instruments in other markets and can, therefore be expected to help in the development of this market. However the measures taken in India are still incomplete and more dedicated efforts would be necessary for a robust growth of asset securitisation market in India. There are several issues facing the Indian securitisation market such as: • Stamp duty: In India, stamp duty is payable on any instrument which seeks to transfer rights or receivables. Therefore, the process of transfer of the receivables from the originator to the SPV involves an outlay on account of stamp duty, which can make securitization commercially unviable in states that still have a high stamp duty. A number of states have reduced their stamp duty rates, though quite a few still maintain very high rates ranging from 512 per cent. To the investor, if the securitized instrument is issued as evidencing indebtedness, it would be in the form of a debenture or bond subject to stamp duty, and if the instrument is structured as a Pass Through Certificate (PTC) that merely evidences title to the receivables, then such an instrument would not attract stamp duty. Some states do not distinguish between conveyances of real estate and that of receivables, and levy the same rate of stamp duty. SEBI has suggested to the government on the need for rationalization of stamp duty with a view to developing the corporate debt and securitization markets in the country, which may going forward be made uniform across states as also recommended by the Patil Committee. • Foreclosure Laws: Lack of effective foreclosure laws also prohibits the growth of securitization in India. The existing foreclosure laws are not lender friendly and increase the risks of MBS by making it difficult to transfer property in cases of default. • Taxation related issues: Some ambiguity remains in the tax treatment of MBS, SPV trusts, and NPL trusts. However, one 35

positive development is that the taxation structure has been changed from distribution tax at SPV level to taxation in the hands of investors, thereby increasing total after-tax returns. This has led to a boost in securitization/ABS issuance through FY2017. • Legal Issues: Investments in PTCs are typically held-to-maturity. As there is no trading activity in these instruments, the yield on PTCs and the demand for longer tenures especially from mutual funds is dampened. Till recently, PTCs were not explicitly covered under the Securities Contracts (Regulation) Act, definition of securities. This was however amended with the Securities Contracts (Regulation) Amendment Act, 2007 passed with a view to providing a legal framework for enabling listing and trading of securitized debt instruments. This will bring about listing of PTCs which in turn will support market growth, which will hopefully help to resolve the “lack of liquidity” issue. Securitisation requires a stable and predictable operating environment. India must establish clear legislative, legal and regulatory guidelines for market participants, incentivize the development of high quality data for proper risk assessment, and increase foreign participation. To this end the regulators have carried out an amendment to the rules governing investment by FPIs in India by expanding the list of areas in which FPIs can invest: These include: Securitised debt instruments, including (i) any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s with banks, FIs or Non-bank Financial Companies (NBFCs) as originators; and/or (ii) any certificate or instrument issued and listed in terms of the SEBI “Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008”. On reading of the above text, it is quite clear that FPIs will be able to invest in both listed and unlisted certificates/ instruments issued by SPVs set up for securitisation of assets. Here it is also important to note that the originators of the assets should be either banks, FIs or NBFCs. In February 2017, SEBI explicitly permitted FPIs to invest in securitized debt instrument (SDI). The SDIs include (i) certificate or instrument issued by a special purpose vehicle set up for securitization of assets where banks, financial institutions or non-banking finance companies are originators; and/or (ii) certificate or instrument issued and listed in terms of the SEBI (Public Offer and Listing of Securitsed Debt Instruments) Regulations, 2008 10. Rates and Credit Market Infrastructure (including Ratings) One of the most important elements for a robust credit/fixed income market is an independent credit ratings industry, which renders a bond market attractive and accessible. While India has 36

seen the creation of a number of local ratings agencies (such as CRISIL, ICRA & CARE) and the entry of the international ratings agencies through acquisition or via the creation of standalone local entities, more remains to be done. To this end, it is gratifying that SEBI intends to announce a ratings agency framework with greater supervision. A well-supervised and established credit rating industry will provide investors with more transparency with respect to the types of securities they are trading. In particular, one of the reasons why investors are not willing to participate in the bond market is the mismatch between the price of the bonds and the actual and real risk they carry. To create a more attractive environment for investments, the credit rating industry must adhere to international best practices. By doing so, investors can take advantage of an international standardized rating, which will in turn make the market more transparent and reliable which will attract both domestic and foreign investors. With the premise that the government is able to halt the tendency of rising interest rates, banks must also start to recognize mark-to-market losses. By doing so, they would be compelled to trade securities, rather than holding them to maturity. The more advanced the trading in the secondary market is, the more necessary is the establishment of a solid risk management function. If banks can actually develop an independent risk management function, they can become involved in the trading of corporate bonds, at every level of the yield curve. This would give the option of access to the bond market for some corporations whose issued bonds carry a low rating and high yield. This is the stage where an appropriate risk management function kicks in, assessing the bank exposure to a certain type of security and taking further action to hedge and balance out the exposure. Nurturing a thorough market infrastructure system also entails meeting the need for international settlement and financing of local bonds. This will help the Indian financial system to be further embodied within the international system. Local bonds will then have a wider range of potential investors, competing with each other and therefore allowing more efficient and less costly financing. Also, this openness will attract foreign firms and give them the opportunity to participate in the market and to reuse the bonds in their funding efforts. To further integrate the Indian financial market within the international marketplace, CCPs such as the CCIL have now been internationally recognized by the European Securities and Markets Authority (ESMA) in order to provide clearing services for all market participants. This is a positive development,.since it signals that CCIL will now comply with international practices, thus being even more attractive to foreign investors. ASIFMA has long supported CCIL’s application for 37

recognition and is glad to note that this objective has now been attained, at least partially. One point worth noting is that recognition of CCIL by the Commodities and Futures Trading Commission (CFTC) in the US, is still outstanding. The trading and clearing of government securities and corporate bonds by CCIL, the clearing agency for G-Secs, and NSCCL, the clearing arm of the National Stock Exchange (NSE) of India, has been functioning smoothly, thereby giving more credit to the clearing system as a whole. The use of clearing systems for the reporting of usage of not just cash bonds/securities but also derivatives instruments such as futures, CDS and other swaps is an encouraging step, since the focus will then be on the reporting of risk, rather than the restriction of derivatives usage. Also, tailoring the use of these derivatives instruments in line with the usage of similar instruments globally will encourage usage and acceptability. Nonetheless, bridging the local settlement system with ICSDs (Euroclear/Clearstream), would constitute a further step in the development of the bond market, as they allow easier movement of global collateral across borders via their “collateral highway”. Combined with offshore settlements, this could create the basis for using local bonds as collateral in the event that market participants need access to USD cash, as we have seen recently. C. The Current Overall Bond Market Legal and Regulatory Framework :Netting, Bankruptcy and Resolution Regulatory Updates on the Developments in the Indian Bond Market Given that a well-developed bond market is vital for the health of the economy, endeavours have been made by the financial regulators in India for promoting exactly that objective in an orderly manner. In India, bonds are largely governed by the provisions of the Companies Act, 2013; notifications and regulations issued by the RBI and regulations and circulars issued by SEBI. On the overall policy front, the Ministry of Finance (MOF), through various departments, acts as the premier policy maker with respect to financial legislation, capital markets regulation and taxation. In addition, the MOF, through the recent establishment of the Public Debt Management Office (PDMA) is also taking on a bigger role in managing the country’s internal debt. The Companies Act, 2013 inter alia makes provisions for the mode of issuance of bonds (private placement or public issue). RBI, inter alia is charged with the responsibility of regulating the issuance of and investments in bonds by banks and non-banking finance companies, foreign investments in India and modes of raising capital offshore and money 38

markets. SEBI, the capital markets regulator of India, concerns itself with issuance and listing of bonds on the stock exchanges and regulating intermediaries The Indian regulators are working in tandem to develop a bond market which complements the banking system in India and provides an alternative source of finance to corporates for long term investments. 1. Recent Entries in the Indian Bond Market In the past, the conventional bond market in India mainly involved products such as non-convertible debentures, foreign currency bonds, zero coupon bonds and structured products. A need was felt to introduce new products in the bond market that would supplement the Government’s wave of developing infrastructure in India by raising debt both onshore and offshore. The Indian bond market thus witnessed the introduction of two new products i.e. Municipal bonds and Masala bonds (we will take a more detailed look at the regulatory framework for Masala bonds in the section below). Further, the Government is making an attempt to popularize holding gold in dematerialized form through gold sovereign Bonds (GSBs) while Indian entities are entering the arena of Green Bonds, (which is discussed in the section below). a. Municipal Bonds While municipal bonds have been utilised to their maximum potential in countries like the US and China, it was only in 2015, that SEBI issued the SEBI (Issue and Listing of Debt Securities by Municipality) Regulations, 2015 (Municipal Bond Regulations) making provisions for issuance and listing of municipal bonds. Municipal Bond Regulations define a municipal bond (also known as ‘muni-bond’) as a long-term bond issued directly by the local municipality or state-owned enterprise for funding infrastructure projects, e.g. public institutions, roads, and highways. The Municipal Bond Regulations classify municipal bonds into revenue bonds and general obligation bonds. The classification is based on the underlying assets that will be used to service the principal and interest payments. While the revenue bonds will be serviced by revenues from one or more identified projects, the general obligation bonds would be serviced through tax revenues collected by the municipalities. To ensure investor confidence, SEBI has ensured that the Municipal Bond Regulations prescribe strict disclosure standards for the municipal bodies. After the introduction of the Municipal Bond Regulations, the Pune Municipal Corporation became the first local body in the India to raise public coffer aggregating to INR 2bn by issuing municipal bonds. As per reports, the issue was oversubscribed six times and received subscriptions worth INR 12bn, thereby showing the appetite of the Indian investors for such 39

bonds. The municipal bond market has massive potential in India. Infrastructure projects are the need of the hour in India and a regulated municipal bond market will ensure a steady flow of capital necessary to fund these projects. As regards investment opportunities, it may provide an alternative investment opportunity to conservative Indian investors investing in fixed deposits, small saving schemes or gold as it provides reasonable return with relatively less risk. This may in turn deepen the capital markets. However, various supply side constraints could prove to be challenging in the development of the municipal bond market. To prepare for these challenges, capitalinvestments and other financial management decisions made by municipal bodies need to be made with caution. Increasing the marketability of municipal bonds, establishing bond banks and creating a secondary bond market are some of the ways to strengthen the municipal bond market and ensure its optimal functioning. b. Gold Sovereign Bonds (“GSBs”) The Sovereign Gold Bonds scheme was introduced by the Government of India in 2015 under the Government Securities Act, 2005. The scheme is keeping in line with the Government’s efforts to restrict its excessive gold imports into India along with other schemes such as Gold Deposit and Gold Monetization. Each year, gold is the second-largest imported commodity in value. A huge amount of gold is currently locked away in Indian households, thereby not playing a productive role in the economy. GSBs provide an alternative of holding gold in dematerialized form so as to deal with the investment demand of physical quantities of gold whilst reducing importation of gold into India and diverting investment in more productive areas of the economy. The terms and conditions of the issuance of the GSBs are notified by the RBI periodically, depending upon the number of series announced for subscription per year, along with an annual set of Operational Guidelines for the same. GSBs are issued in the form of Government of India stock, for which the investors receive a physical holding certificate. The physical holding certificate is eligible for conversion into dematerialized form. Currently, only a person resident in India can subscribe to GSB. The three important benefits of GSBs are (i) coupon rate; (ii) tax exemptions; and (iii) physical security. GSBs have been exempted from capital gains tax arising on the redemption of these bonds. GSBs allow the investor to hold gold as investment and benefit from capital appreciation as well as receive a small interest income.

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2. Inter-linkage of the Indian Bond Market with Repos, Swaps and Futures Markets Development of the bond market is harmonious with the development of repos and swaps market. Repos provide the primary dealers with a broader range of hedging strategies by linking the money markets and bond markets. This allows the security dealers to obtain short term liquidity and even cheap capital to finance their bids at auctions of new issues. Swaps markets enable the market of a specific country to integrate into the broader international financial system by bringing together two counterparties who have different interests in different markets and help in attracting a wider number of foreign investors who in turn bring portfolio investments thus enabling the bond markets to grow even further. Similarly, a well developed futures market is beneficial for attracting foreign capital into India, since futures allow for the hedging of interest rate and currency risks. a. Repo Market Repos have been permitted in government securities (issued by both the Central Government and State Governments) and corporate bonds in the Indian market. Repos in corporate bonds inter alia include repos in commercial papers, certificate of deposits, non-convertible debentures and bonds issued by multilateral financial institutions like the World Bank Group (e.g., IBRD, IFC), the Asian Development Bank or the African Development Bank and other such entities as may be notified by the RBI from time to time. Traditionally, the repo market in India differed from the “classic” repo which envisages the transfer of title of security and allows the counterparty to use the security for a variety of purposes. This permits the counterparty to further use the security as it owns the security for a new repo, covering naked short positions, collateral, and securities lending or as a liquidity management instrument. However, in India, the security acquired under repo could not be sold by the repo buyer (lender of the funds) during the period of repo. RBI, in 2015, relaxed this restriction by permitting re-repo in government securities acquired under reverse repo, subject to certain conditions. At present, re-repo is restricted to government securities and does not extend to corporate bonds. RBI has further made reporting of repo trades mandatory on platforms created by the CCIL or its subsidiary the Clearcorp Dealing Systems (India) Ltd. RBI’s most recent initiative has been the introduction of Tri-Party Repo (Tri-Party Repo Framework) in relation to both government securities and corporate bonds. The proposed TriParty Repo Framework by the RBI is aimed at enabling market participants to use underlying collateral more efficiently and facilitates the development of the term repo market in India. It isnot yet clear whether this will finally result in the use of GMRA documentation. 41

Swaps Market The swaps market in India broadly is composed of parties with varied exposures to interest rate and currency risk, such as banks, primary dealers, mutual funds, insurance companies and corporates. Swaps have been traded in the Indian markets since the 1990s. While banks and primary dealers (to a limited extent) have been permitted to make markets in India, all other entities are permitted to use these products only to hedge their currency or interest rate risk. The Indian swaps market has evolved over the years. The products that have been traded in the markets have gradually evolved from being simple ‘plain vanilla’ swaps to some sophisticated cost reduction structures. The Indian OTC derivatives market has witnessed significant growth over the last few years. While there has been limited growth in the options and credit derivative markets, the OTC derivatives market has largely evolved on the basis of the swap market in India. RBI has made tremendous efforts to ensure a healthy swaps market by implementing G-20 initiatives. The steps taken by the RBI in this direction include mandatory central clearing, bilateral margining requirements, and the creation of an LEI, all meant to guarantee the security of these transactions. RBI has appointed CCIL for the purpose of providing entities with an LEI. The local operating units (LOU), are the local implementers of the LEI system and provide the primary interface for entities wishing to register for LEI. CCIL has been designated as the preLOU in India. CCIL has also been registered as a pre- LOU by the Regulatory Oversight Committee. In the current context, it may be relevant to note that on 1st June 2017, RBI mandated the implementation of the LEI system for all participants in the OTC markets for INR interest rate derivatives, foreign currency derivatives and credit derivatives in India, in a phased manner (ending March 2018). c. Futures Market SEBI, in consultation with the RBI, introduced exchange traded cash settled IRF on a range of underlying G-Sec maturities. To further protect the interest of the investor and bring transparency, SEBI has mandated stock exchanges in India to provide information regarding aggregate gross long position in futures markets taken together at end of the day to the depositories National Securities Depository Ltd and the Central Depository Services India Ltd. The depositories are required to publish the data on their website. With such initiatives in the repo, swaps and future market, we expect the markets to maintain pace in the coming years and see the development of a more viable bond market. A number of other steps have also been taken to make the investment 42

3. Concrete Steps for Attracting Foreign InvestmentThe role of foreign investments in the bond market cannot be emphasized enough. Recent benefits given to the FPIs show the commitment of the Indian regulators towards attracting foreign investments in the Indian bond market. a. FPI limits for investment in government securities has been enhanced to INR 1877bn; and b. In February 2017, SEBI finally permitted FPIs to invest in unlisted corporate debt securities in the form of non-convertible debentures/bonds issued by public or private Indian companies This is subject to minimum residual maturity of three years and end-user restriction on investment in real estate business, capital market and purchase of land. c. SEBI has released a consultation paper dated 28th June 2017 for easing of access norms for investments by FPIs. SEBI vide this consultation paper inter alia proposes to rationalize the foreign portfolio investment route by untangling the procedures to attract more funds. 4. Protection of Investors ‘a must’ For the development of the bond market confidence of the investors is sine qua non. Realizing the importance, the Indian regulators have taken concrete steps to instill the faith of investors in the bond market. a. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) In September 2015, SEBI notified the LODR Regulations providing for disclosures to be made by a listed entity if it has outstanding listed debt . Chapter V of the LODR Regulations contains detailed provisions with respect to compliances for listed debt securities. These provisions aim to increase transparency in the market and enable investors to make informed decisions. b. Netting With increasing multiplicity and complexity of transactions, the concept of netting has gained tremendous momentum. Netting gives the investors a right to offset giving them more confidence to remain in the market. This affirmation is particularly relevant for banks and investment managers who are significantly exposed to counterparty risk if exposures are grossed up and not netted. Thus, these types of institutional investors set limits to reduce the level of exposure in the market, hampering liquidity even further in the secondary market. In the recent past, enforceability of netting has been doubted by certain segments of the markets as regards sovereign owned entities. Concrete steps have been taken under the new Insolvency framework to give formal recognition to the concept of netting in India.

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The IB Code is the Government of India’s response to resolve the growing crisis faced by banks in India as regards impaired debt and low recovery rates. The inimitable feature of the IB Code is that it has an overriding effect over all other legislations – Central or State. This is a first for any Indian legislation. The concern as regards netting has been partly addressed by the enactment of the IB Code. Section 36 of the IB Code stipulates that any assets of the corporate debtor that could be subject to mutual dealings and set-off would not form part of liquidation estate of the corporate debtor. Further, the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 states that “where there are mutual dealings between the corporate debtor and another party, the sums due from one party shall be set-off against the sums due from the other to arrive at the net amount payable to the corporate debtor or to the other party”. ii. Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) The MOF introduced the draft FRDI Bill in September 2016. After taking feedback from key stakeholders, a revised draft is to be placed before the Indian Parliament in the monsoon session of 2017. It proposes to establish a special resolution regime to be administered by Resolution Corporation. This will cover financial service providers such as banks, insurance companies, financial market infrastructure entities, payment systems. As regards netting of financial entities, the FRDI Bill proposes to establish a special resolution regime for financial service providers. The FRDI Bill will be amending the Reserve Bank of India Act, 1934 and providing a statutory basis to netting for all classes of counterparties. It is expected that the Resolution Corporation will protect the stability and ensure the resilience of the financial system. Once implemented, the FRDI Bill together with the IB Code will go a long way in giving comfort to the investors by unambiguously implementing the principle of netting, ultimately leading to a flourishing bond market. 5. Indian Bond Market: The Road Map Ahead SEBI has been making ongoing efforts in strengthening the Indian bond market. Through its various initiatives, SEBI, intends to create a more transparent and liquid bond market in India. a. Re-issuance and Consolidation of Bonds SEBI vide its circular dated 30 June 2017 has made provisions for re-issuance and consolidation of debt securities issued on private placement basis. As per the circular, an issuing company will be permitted a maximum of 44

17 International Securities Identification Numbers (ISINs) maturing per financial year that shall include 12 ISINs for plain vanilla debt securities and 5 ISINs for structured debt/market linked debentures. An issuer issuing only structured/market linked debt securities has been permitted 12 ISINs in a financial year. This may however, cause some practical difficulties to issuers who are used to doing multiple issuances in a year. Same ISIN may be granted to only those debt securities having a common maturity and coupon. This may limit the number of issuances an issuer can make in a financial year. While the proposed amendments are expected to increase liquidity in the market, this will need to be weighed with the clubbing of liabilities for the issuer. b. Electronic Book Provider (EBP) Mechanism The use of the EBP mechanism is currently mandatory for all private placements of debt securities with an issue size of INR 5bn. With its consultation paper dated 22nd May, 2017, SEBI has expressed its intention of making EBP mechanism mandatory for all private placement of debt securities with an issue size of INR 500mn. SEBI proposes to provide an option of direct bidding to non-institutional investors. Currently, only institutional investors have a choice of either participating through an arranger or entering bids on proprietary basis on their own. Though the purpose of SEBI for introducing the consultation paper is achieving better and transparent price discovery through the bidding process, having a threshold as low as INR 500mn shall increase the cost of fund raising for small and medium size issuers and may thereby discourage small issuers from the corporate bond market. 1. Uniform Settlement Cycle for Government Debt Securities Background At present the settlement cycle for FPIs trading in government debt via the OTC route is T+2 with different cutoff time for reporting / confirmation of sale and purchase trades. While the sale trades are required to be reported on day T (‘T’ being the trade date) the purchase trades can be reported until 1 pm on day T+1. For trades executed on NDS-OM Web the settlement cycle is T+1. The challenge for investors is to manage different reporting dates for purchase/ sale. Global custodians and FPIs prefer not to have differential treatment of reporting / confirmation of purchase and sale trades as it requires considerable changes in systems and bespoke procedures at their end. Also, for certain FPIs, reporting of trades on day T is a challenge as the necessary instructions to the local custodian via the global custodian may not flow on day T before the reporting / confirmation deadline. Recommendation We suggest moving the settlement cycle to 45

T+1 with custodian reporting/confirmation in the first half of T+1, uniformly for purchases and sales, allowing FPIs across time zones sufficient time to send instructions to the local custodian via the global custodian overnight and to make necessary arrangements for margin and settlement funding. 2. Rationalization of Debt Limit Rules Background a. The existing debt limit rules have multiple nuances making the process of pre-trade due diligence and limit monitoring of available limits quite complex for the foreign investors. The monitoring of limits is particularly complex on account of multiple categories and subcategories of limits and nuances pertaining to reinvestment eligibility. The practice of auction of limits when overall FPI utilization is more than 90% of the total limit under the general category (non long term) also adds to the complexity. b. The custodians are required to ensure that the cumulative value of the purchase trades of their respective clients in a given day does not exceed the threshold of 90% utilization (90-N) and 100% utilization (100-N) for General Category limits and Long Term Category limits respectively. This results in uncertainty and potential commercial impact to FPIs when utilization approaches the thresholds, as ‘in flight’ trades that fail the (100-N) & (90-N) are not reported on NDS-OM by the custodian. Also, this check performed by the custodians is error prone due to the manual nature of such monitoring. c. The utilization of reinvestment eligibility is calculated by FPIs and Custodians manually and is reported daily to NSDL. NSDL consolidates the positions based on reporting by the custodians and hosts the cumulative utilization on its website daily. The multiple legs in the process and the manual intervention in the process heighten the risk of incorrect calculation of cumulative utilization. d. Recently, FPIs have been allowed to access real time anonymous order matching platform NDS OM-Web Module for trading in government debt. However for FPI trades executed on this platform custodians cannot perform checks such as the monitoring of (100-N) and (90-N) threshold and adherence to residual maturity, restrictions applicable to FPIs. e. There is also an ask from FPIs to increase the time window available to avail of reinvestment facility upon sale or maturity of their debt holdings. 2. Masala Bonds The issue of A.P. (DIR Series) Circular No.171 by the RBI, commonly referred to as the “Rupee Denominated Bond Guidelines” (“RDB Guidelines”), initially paved the way for Indian issuers to quickly and efficiently issue Indian Rupee-denominated bonds in the international debt capital 46

markets pursuant to the RBI’s overarching Master Circular on External Commercial Borrowings and Trade Credits (the “ECB Guidelines”), without having to seek prior approval from the RBI. The introduction of the “RDB Guidelines” was pursuant to the robust demand made by the International Finance Corporation (“IFC”) and the Asian Development Bank. IFC was the first to issue RDBs outside India. The RDB Guidelines permits banks, corporates, non-banking finance companies, infrastructure investment trusts and real estate investment trusts to issue RDBs overseas. The introduction of the RDB Guidelines has ushered a new era for debt-raising by Indian entities. Initially, the Rupee Bond Guidelines have relaxed a number of the requirements for Indian credits to access foreign funding and, in the process, opened up a potentially flexible form of funding for Indian companies through the issuance of so-called ‘Masala bonds’, which are bonds denominated in Indian Rupees but settled in a foreign currency (for example, U.S. dollars). This synthetic settlement feature of Masala bonds means that issuers enjoy the benefits of raising capital in their home currency, with currency fluctuation risk shifting to investors, while at the same giving them an opportunity to tap an international investor base in the G3 markets. Similarly, the Rupee Bond Guidelines present foreign fixed income investors with the first real opportunity to gain portfolio exposure to the Indian Rupee – a currency that, at the time of the introduction of the Rupee Bond Guidelines, enjoyed significantly lower implied volatility compared to its Asian peers and other emerging market currencies in the wake of the RBI’s inflation targeting policies. In addition, the Indian Finance Ministry has reduced the withholding tax on interest income of such bonds to 5 per cent from 20 per cent and capital gains from rupee appreciation have been exempted from tax, thus providing an additional source of attraction to foreign investors. While Masala bonds did not introduce any regulatory flexibility insofar as credit enhancement elements, covenant packages and related structural techniques are concerned, the effective passing of currency risk to an investor base that was seemingly happy to assume it led to an initial spate of issuance, especially following the reduction of the minimum average maturity period from five years to three years – thereby ensuring that fixed income investors had access to a U.S. dollar-Indian Rupee currency swap market that was sufficiently deep to hedge their currency exposure (a market which did not otherwise exist with a minimum average maturity of five years and over). It was thus widely expected that Masala bonds would provide an opportunity for mid-size Indian corporate issuers, who would otherwise not meet the ECB Guidelines requirements in order to access foreign investors, to access an international fixed 47

income investment base. This was especially the case for non-bank financial companies, such as Indiabulls Housing Finance Limited and HDFC, who did not have the benefit of a deposit base: Masala bonds essentially provided them with an entirely new source of funding. In Indianbulls Housing Finance's case, a reduction in the cost of funding was achieved further by securing the bonds against its loan portfolio, on a pari passu basis with the rest of its loans. However, since the introduction of the Rupee Bond Guidelines, the requirements for issuers to be able to use them as an instrument have become increasingly stricter, with the most recent A.P. (DIR Series) Circular No.47 effectively increasing the average maturity back to five years (for issues above USD 50 million); including an all-in cost ceiling limited of 300 basis points above the prevailing yield of Indian sovereign securities of equivalent maturity, and – as indicated in the discussion on high yield bonds above – excluding the use of Masala bonds as part of a broader structure by requiring investors not to be related parties. It is our view that these recent changes to the regulatory framework represent an obstacle to the further development of the Indian capital markets 4. Green Bonds There is no formal or statutory definition of a green or climate bond, nor are they always easily identifiable by a green moniker or a “green bond” title. Essentially a green bond or climate bond is a fixed income product the proceeds of which are used for projects which have environmental benefits and typically promote a low carbon economy. Green bonds are popular amongst issuers for various reasons, although at the moment improved pricing on issue does not seem to be one of them. Corporate green bonds are currently pricing flat on issuance with the issuer’s other debt. There is logic to this as the credit is the same. Interestingly however, many of the green bond issuances are creating demand from a wider range of investors, and in some cases investors who are new to the particular issuer. For example, on the GDF Suez issuance it was reported that 64% of investors were sustainable investors, many of whom were investing in GDF bonds for the first time. Increased investor demand and diversification may eventually translate to a pricing differential. A recent report by Barclays indicates that green bonds trade at a premium in the secondary market, up to 17 basis points tighter than conventional bonds, attributed in part to demand from environmentally-focused funds. In addition, issuers benefit from positive publicity

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resulting from green bond issuance – green bonds present an opportunity to align corporate strategwith fund raising. Although multilateral investment institutions such as the European Investment Bank and the World Bank have been issuing green bonds since 2007, the first corporate green bonds were only issued in November 2013 (with Indian's first certificated green bond in international markets being raised by Axis Bank Limited in 2016, listing on the London Stock Exchange). In India, green bonds have also been issued by other Indian entities such as Yes Bank Ltd., Exim Bank, IDBI Bank Ltd. and have received positive response in the market. Keeping in mind the potential of green bonds, SEBI, in May 2017, notified disclosure requirements for issuance and listing of green bonds (“Green bonds Circular”). As per the Green bonds Circular, green bonds can be issued inter alia for projects and/or assets relating to renewable sources of energy, waste management and climate change adaption. To ensure bona fide utilization of funds, SEBI has placed the issuing company under an obligation to utilize the proceeds for the stated environment purpose, and ensure that the projects/assets meet the eligibility criteria. SEBI has prescribed additional disclosure requirements for issue of green bonds. Since 2013, the global market has seen exponential growth, from USD 11bn in 2013 to approximately USD 93bn in 2016 (Reuters data), and the number and range of issuers entering the green bond market continues to expand. The emergence of the green bonds market has been recognised by the United Nations in its “Trends in Private Sector Climate Finance” on 9 October 2015 as representing “one of the most significant developments in the financing of low-carbon, climate-resilient investment opportunities”. There is no legal definition of a “green bond”: it is effectively issuers themselves who determine if their bonds are green and market them as such. Similarly, the ongoing commitments of green bond issuers, such as ensuring that the proceeds are used for the green purposes described in the bond offering documentation and complying with any reporting obligations that they have agreed to adhere to, are not generally included as contractual covenants enforceable by investors – investors must rely on market reprobation to ensure issuer compliance. The key players in the green bond market see benefit in self-regulation by the market, but also recognise that minimum standards and criteria give confidence to investors, enable better and quicker execution and trading and improve comparability across bonds. To address the lack of uniform standards the Green Bond Principles (GBP) and the Climate Bonds 49

Initiative (CBI), amongst others, have sought to develop general principles and certification programmes. In conjunction with these initiatives there is an increased focus across the sector on standardising the provision of assurance, verification and reporting. While the introduction of green bonds , and their adoption by Indian issuers, are seen as being a positive development in the world of sustainable finance, the commercial reality remains that green bonds are ultimately no different – from a credit profile and credit analysis perspective – than any other corporate bond issuance. Accordingly, the issues and challenges faced by Indian companies seeking to engage a broader "green" investor base, and enhance its access to sustainable financing, will be subject to the same obstacles surrounding pricing parameters and the lack of viable credit enhancement, synthetic settlement and pricing alternatives attendant on any other issuance of debt securities

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CONCLUSION Debt Instrument is what something, usually money is owed by one party, The borrower or debtor to a second party. It’s a paper or electronic obligation that enables the issuing party to raise fund the promising to repay a lender in accordance with terms of a contract. Types of debt instrument include note, bonds, debentures, certificates, mortgage, leases or other agreement between lender and borrower. The instrumen provide a way for market participants to easily transfer the ownership of debt obligation from one party to another. Debt instruments can be either long-term obligation or Short- term obligation, short- term debt instrument , both personal and corporate , come in the form of credit card bills , payday loans, car title loan and others consumers loans. In corporate finance short-term debt usually come in the form of revolving line of credit, loans are while it tries to raise venture funding, the loan is consider a short term debt instrument.

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BIBLOGRAPHY

Avadhani V.A. (2013). Securities Analysis and Portfolio Management, New Delhi: Himalaya Publishing

House, 5 Avadhani V.A. (2008). Marketing of Financial Services, Credit Rating Services, New Delhi:

Himalaya Publishing House, 305. Bagchi, S.K. (2004). Credit Risk Management, Mumbai: Jaico publishing

House, 66-74. Gurusamy D.S. (2008). Financial Markets and Institutions, Chennai: Vijay Nicole inprints

Pvt. Ltd., 301-316. Karmakar, K.G. (1999). Rural Credit and SHGs – Micro Finance Needs and Concepts

in India, New Delhi: Sage Publications, 211. Khan M.Y. (2006). Financial Services, 3rd Edition, New

Delhi: Tata McGraw Hill Publishing Co., Ltd. Kohak M.A. (1993). Financial Markets and Services ,

Nashik Digvijay Publications, 401-405. Kohok, M.A. (1993), Reading in Indian Financial Service, Credit

rating its technique and valuation model, Nasik: Digvijay Publications, 26. Premavathy, N. (2007).

Financial Services and Stock Exchanges, Chennai: Sri Vishnu Publications, 16.1-16.10. Punithavathy

Pandian (2012). Financial Services and Markets, New Delhi: Vikas Publishing House Pvt. Ltd., 105-120.

Please purchase PDF Split-Merge on www.verypdf.com to remove this watermark. Punithavathy

Pandian (2012). Financial Services and Markets

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WEBLIOGRAPHY

www.idfcmf.com

www.google.com

www.borsaistanbul.com

www.inc.com

www.knowledgevilla.com

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DATA ANALYSIS

DATA INTERPREATION

:-

The trend is growing and in 2019 these numbers became only bigger. The amount of data generated each second will grow 700% by 2020, according to GDC prognosis. The financial and banking data will be one of the cornerstones of this Big Data flood, and being able to process it means being competitive among the banks and financial institutions. As we already elaborated while listing the types of Big Data tools IT Svit uses, the really big data flows can be described with 3 v’s: variety, velocity, and volume. Here is how these relate to the banks: 

Variety stands for the plenitude of data types processed, and the banks do have to deal with huge numbers of various types of data. From transaction details and history to credit scores and risk assessment reports — the banks have troves of such data.



Velocity means the speed at which new data is added to the database. Hitting the threshold of 100 transactions per minute is easy for a respectable bank.

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

Volume means the amount of space this data will take to store. Huge financial institutions like the New York Stock Exchange (NYSE) generate terabytes of data daily.

However, as we explained in the article on the Big Data visualization principles, the 3 v’s are useless if they do not lead to the 4’th one — value. For the banks, this means they can apply the results of big data analysis real time and make business decisions accordingly. This can be applied to the following activities: 

Discovering the spending patterns of the customers



Identifying the main channels of transactions (ATM withdrawal, credit/debit card payments)



Splitting the customers into segments according to their profiles



Product cross-selling based on the customers’ segmentation

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Fraud management & prevention



Risk assessment, compliance & reporting



Customer feedback analysis and application

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