Capital augmentation of banks in future could be a challenge and this could constrain them from increasing their lending to infrastructure in line with the financing needs of the sector. Therefore, there is a clear need for a corporate debt market to serve as a source of long-term finance for corporates and as an alternate to a bank-dominated financial system.
The specific characteristics of infrastructure bonds like long duration and high coupon make these bonds attractive for insurance and pension companies who should step up their investments given the limitations on banks’ capacity. Steps being contemplated by IRDA for insurance companies may provide necessary boost.