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Green financing through
Rupee debt markets
ICICI Bank India
June 30, 2016
Disclaimer
This presentation has been prepared by ICICI Bank Limited, India. Nothing contained in this document shall
constitute or be deemed to constitute an offer to sell/purchase or as an invitation or solicitation to do so for any
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accuracy, completeness or reliability of any information contained herein or otherwise provided and hereby
disclaim any liability with regard to the same. Before entering into any transaction you should take steps to that
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eligible to be categorised as eligible counterparties (as defined in Article 24(2) of Directive 2004/39/EC on
markets in financial instruments) (“Eligible Counterparties”). This presentation must not be acted on or relied on
in the United Kingdom by persons who are not Eligible Counterparties.
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have professional experience in matters relating to investments who fall within article 19(5) of the Financial
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For ease of reference, most figures have been quoted in USD terms. For the purpose of representation of data,
the RBI Reference Rate of 1 USD = 67.1682 INR, as on June 17, 2016, have been considered. Financial Year (FY)
in the presentation, wherever applicable, refers to the period from April to March.
2
Presentation outline
1. About ICICI Group
2. Green bonds: Indian context
3. Summary: Key themes
3
ICICI Group
Savings
Investments
Protection
Capital
flows
Credit
Spanning the spectrum of financial services
4
ICICI Bank
Largest private sector bank in India in terms of total assets
Tier I capital adequacy of 13.09% as per Basel III norms
Large physical footprint in India with 4,450 branches and 13,766
ATMs
Diversified loan portfolio
Leadership in technology & digital initiatives
Investment grade ratings from Moody’s and S&P
Global presence in 17 countries (including India)
*Data as of March 31, 2016
5
Green energy commitment
No.
Name of Bank/Financial Institution
Capacity (MW)
1
State Bank of India
15,000
2
ICICI Bank Ltd.
7,500
3
L&T Finance Holdings Ltd.
6,500
4
Indian Renewable Energy Development Agency Ltd.
6,000
5
PTC India Financial Services Ltd.
6,000
6
Yes Bank
5,000
7
India Infrastructure Finance Co. Ltd.
4,000
8
IDBI Bank Ltd.
3,000
9
Power Finance Corporation
3,000
10
Bank of Baroda
2,500
Source: Green energy commitments under RE-Invest 2015; http://re-invest.in/
6
Presentation outline
1. About ICICI Group
2. Green bonds: Indian context
3. Summary: Key themes
7
Size of market (Amount outstanding)
Long dated debt securities
INR trillion
USD billion
Central government securities (G)
45.67
679.88
State government securities (S)
16.39
242.57
Total sovereign securities (= G+S)
62.06
922.45
Corporate bonds (C)
20.19
300.63
Total debt securities (= G+S+C)
82.25
1,223.09
Treasury Bills (TB)
3.65
54.30
Commercial Paper (CP)
2.60
38.74
Certificates of Deposit (CD)
2.45
36.43
Total money market instruments (= TB+CP+CD)
8.70
129.47
Bank credit
75.30
1,121.06
Money market instruments

Corporate bonds outstanding at 27% of aggregate bank credit
Source: RBI, SEBI, CCIL; Data as on March 31, 2016
8
Renewable energy: Financing outlook
Renewable energy (RE) targets
Installed renewable energy (RE) capacity
45 GW
Target RE capacity (by 2022)
175 GW
RE capacity to be commissioned
130 GW
Cost of financing & existing exposures
USD billion
Cost of installation (assuming ~ USD 1 million per MW)
130
Non-equity financing requirement (@ 70:30 Debt-equity)
90
Aggregate exposure of banks/FIs to power sector
152

- Scheduled commercial banks
86
- Power Finance Corporation (PFC)
36
- Rural Electrification Corporation (REC)
30
Need for emphasis on green financing through capital markets
Source: RBI; Exposure data as on March 31, 2016
9
Capacity
Foreign ownership of Rupee debt
USD billion
G-Secs
SDLs
Corporate bonds
Outstanding amount
679.88
242.57
300.63
Foreign holding
24.66
0.67
25.14
% of foreign holding
3.63%
0.27%
8.36%
SDL: State Development Loans; SDLs are state government securities

Medium Term Framework (MTF):

Roadmap for gradual enhancement in debt investment limits for
foreign portfolio investors (FPI)
 Limits for FPI investment in central government securities to be
increased in phases, up to 5% of outstanding stock by March 2018
Source: CCIL, NSDL; Data as on March 31, 2016
10
Trends in FPI debt limit utilisation (%)
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Government debt
44%
76%
97%
100%
100%
99%
Corporate debt
32%
34%
47%
77%
76%
69%
Total utilisation
35%
42%
64%
86%
85%
80%
Source: NSDL; FPI = Foreign Portfolio Investor
11
Size of market (Annual issuance)
USD billion
Annual supply
FY2014
FY2015
FY2016
Growth (%)
Central government securities
83.96
88.14
87.09
2%
State government securities
29.78
37.13
58.28
40%
Total government securities
113.74
125.27
145.37
13%
Corporate bonds
46.92
71.37
75.83
27%
- Private placement
40.61
69.93
70.79
- Public issue
6.31
1.45
5.03
160.66
196.64
221.20
Total supply of debt securities

Corporate bonds are mostly issued on private placement basis
Source: RBI, SEBI, CCIL, Prime database
12
17%
Supply landscape: Rupee bond markets
100%
Annual issuance (Category-wise breakup)
90%
24%
80%
70%
60%
50%
40%
65%
30%
20%
10%
0%
FY2012

FY2014
All-India Financial Institutions
Private sector - Financials
State level undertakings
Private sector - non-financials
FY2015
FY2016
Public sector undertakings
Financial sector constitutes ~65% of annual issuance,
although the share of non-financials are increasing
Source: PRIME database, SEBI
13
FY2013
Credit enhancement

‘AA’ rating threshold for investments by
retirement funds and insurers (under “Approved
category”)


~60% of FY2016 annual supply from AAA issuances
Credit enhancement options:

Banks permitted to offer partial credit enhancement
of up to 20% of issue size
 Credit enhancement scheme from IIFCL
 LIC of India to set up dedicated fund to provide
credit enhancement to infrastructure projects
Source: Prime database, Union Budget 2016-17
LIC: Life Insurance Corporation of India
IIFCL: India Infrastructure Finance Company Ltd.
14
Green allocation to create demand…
Category
Retirement
funds (Defined
Benefit funds)
Life insurance
companies
New Pension
Scheme (NPS)
(Defined
Contribution
funds)
Size
•
•
•
•
•
Investments of
USD 175 billion
Annual inflows
of ~ USD 33
billion
Investments of
USD 335 billion
as on Mar 31,
2015
Investments of
USD18 billion
as on Mar 31,
2016
Inflows of ~
USD 5.6 billion
in FY2016
Category
Min.
Max.
Govt. securities
45%
50%
Corporate bonds
35%
45%
Equities
5%
15%
Min.
Max.
50%
85%
--
50%
Category
Govt. securities
Approved
Investments
•
•
•
•
Min. AA rating
Dual rating
Listed bonds
Min. tenor of 3
years
•
Corporate bonds
rated AA & above
included under
“Approved
Investments”
Preference for
secured bonds
•
Housing &
infrastructure
15%
--
Category
Min.
Max.
•
Govt. category (G)
20%
80%
•
Corp. category (C)
10%
30%
Equities (E)
10%
50%
Auto-choice or Active choice
Source: IRDAI, PFRDA, NSDL, Ministry of Finance
15
Criteria for allocation
to corporate bonds
Allocation
Auto-choice
usually preferred
Allocation to
asset class
depends on age
of subscriber (35
to 55 years)
Presentation outline
1. About ICICI Group
2. Green bonds: Indian context
3. Summary: Key themes
16
Summary: Key themes
Indian bond markets, under-owned by overseas investors
Financial sector issuers to drive Green issuance
Credit enhancement to play key role in Green financing
Regulations relating to Green allocation to create demand
17
Thank you
18
Contact details
ICICI Bank Ltd (India Corporate Office)
Sreekanta Chatterjee
Ritesh Tatiya
ICICI Bank Towers, Bandra Kurla Complex
Bandra East, Mumbai, India
Tel. No. +91 22 26537295
Mob. +91 9930061655
E-mail: [email protected]
ICICI Bank Towers, Bandra Kurla Complex
Bandra East, Mumbai, India
Tel. No. +91 22 26538919
Mob. +91 9004418145
E-mail: [email protected]
Naina Agrawal
Sanjali Jain
ICICI Bank Towers, Bandra Kurla Complex
Bandra East, Mumbai, India
Tel. No. +91 22 26538894
Mob. +91 7303693499
E-mail: [email protected]
ICICI Bank Towers, Bandra Kurla Complex
Bandra East, Mumbai, India
Mob. +91 9407413121
E-mail: [email protected]
ICICI Bank UK Plc
Keval Rawal
ICICI Bank UK Plc., One, Thomas More Square,
Thomas More Street, London, UK
Tel. No. +44 20 73755536
Mob. +44 7482238118
E-mail: [email protected]
19
Strong franchise
 Sustained
private
sector
market
leadership1
 Strong
profitability
 Sustained
India’s
private
largest
sector
mutual fund1
market
leadership1 Strong fund
 Healthy
performance
returns
Largest online retail
broking platform
Strong franchises;
market-linked
businesses
 Strong and growing retail franchise
 Well established corporate franchise along
with overseas presence
1. Based on retail weighted received premium for FY2016
2. Based on gross written premium for FY2016
3. Based on average AUM for the quarter ended March 31, 2016
20
Regulatory structure
Ministry of Finance
Banking








Reserve Bank of India (RBI)
Regulator and supervisor of the
financial
sector
comprising
commercial banks, financial
institutions and non-banking
finance companies
Monetary Authority: Includes
formulation, implementation and
monitoring of monetary policy
Manages the Foreign Exchange
Management Act, 1999
Issuer of currency
Banker and Debt manager to
central and state governments
Developmental role; performs a
wide range of promotional
functions to support national
objectives
Regulates the money market,
including repo markets
Capital markets






Securities Exchange Board of
India (SEBI)
Regulates the business in
stock exchanges and any other
securities markets
Registers and regulates the
working of the depositories,
Debenture trustees, custodians
of securities, foreign portfolio
investors and rating agencies
Registers and regulates the
working of venture capital
funds, mutual funds, collective
investment
schemes
and
market intermediaries
Promotes investors' education
and training of intermediaries
of securities markets
Prohibits fraudulent and unfair
trade practices relating to
securities markets
Insurance







Insurance
Regulatory
Development Authority of India
(IRDAI); Insurance regulator
To regulate, promote and
ensure orderly growth of the
insurance and re-insurance
business
Protection of the interests of
the policy holders in matters
concerning
contracts
of
insurance
Regulating investment of funds
by insurance companies
Regulating maintenance of
margin of solvency
Developmental role; performs a
wide range of promotional
functions to support national
objectives
Promoting efficiency in the
conduct of insurance business
Corporate bond markets are governed by guidelines prescribed by multiple regulators
Source: RBI, SEBI, IRDAI
21
Pension funds
Defined benefit schemes
Ministry of Labor






Regulated by the Employees’
Provident Fund Organisation
(EPFO), Ministry of Labour &
Employment, Govt. of India
Administered by the Central
Board of Trustees (CBT),
consisting of representatives
of government (both central &
state), employers & employees
Funds managed by EPFO
regulated professional fund
managers, as per the approved
investment guidelines
Exempted PF trusts managed
by individual employers
Rate of return on investments
declared annually; shortfall to
be met by employers
Permitted to invest in equities
from 2015 onwards
Ministry of Finance






Regulated by the Department
of Financial Services, Ministry
of Finance (MoF)
Regulates retirement funds of
most banks, insurance cos.,
and financial institutions
Investment pattern prescribed
by MoF is usually adopted by
the Ministry of Labour &
Employment
Regulates investments of
non-government
provident
funds, gratuity funds and
superannuation funds
Traditionally
encouraged
greater allocation to corporate
debt securities
Permitted
its
regulated
entities to invest in equities
from 2008 onwards
Source: Ministry of Finance, PFRDA, EPFO
22
Defined contribution schemes
National Pension System (NPS)







Administered and regulated by the
Pension
Fund
Regulatory
&
Development Authority (PFRDA)
Defined
contribution
retirement
savings scheme
Policy matters decided by the
Department of Financial Services,
Ministry of Finance
Aggregate assets of INR 1.18 trillion
(~USD 17.57 billion) as on Mar 31, 2016
Funds managed by PFRDA regulated
professional fund managers, as per
the approved investment guidelines,
into diversified portfolios comprising
of government securities, corporate
bonds and equity shares
One of the lowest cost pension
products available in India
Tax benefits extended to subscribers
up to certain specified limits
Insurance sector: Investments
USD billion
Investments
Life
Non-life
Total
Public insurers
265.90
15.48
281.38
Private insurers
68.63
8.49
77.12
Total
334.68
23.97
358.50
Life
Non-life
Total
Central govt. securities
107.64
6.40
114.04
State govt. & other approved securities
64.17
2.53
66.70
Housing & infrastructure
26.05
6.25
32.31
Approved investments
79.06
8.04
86.95
Other investments
3.87
0.74
4.62
280.64
23.97
304.46
ULIPs
54.04
Total
358.50
Category
Total
Source: IRDAI; Data as of March 31, 2015
ULIP: Unit Linked Insurance Plan
23
Asset managers: AUM breakup
USD billion
Category
AUM
% of industry AUM
Income funds*
90.99
44%
Liquid/money market
40.16
20%
Gilt funds
2.29
1%
Balanced funds
6.36
3%
Equity (other than ELSS)
55.13
27%
ELSS
6.66
3%
ETFs
3.56
2%
Others
0.55
0%
205.70
100%
Total
* Close end Income funds stood at USD 22.12 billion (~ 24% of Income category)

Over 65% of AUM of mutual funds is in Debt category
Source: AMFI; AUM data as on May 31, 2016
ELSS: Equity Linked Savings Scheme
24
Green bonds: Indian experience (1/2)
Issuer
End use
Remarks
First Rupee Green
bond issue by an
Indian issuer.
(Feb 2015)
•
•
•
•
Issuer: Yes Bank
Amount: ` 10.00 bn
Coupon: 8.85%
Tenor: 10 yrs
Issued under the RBI
guidelines for
issuance of long term
infrastructure bonds
by banks; To finance
RE projects
(Mar 2015)
•
•
•
•
Issuer: Exim Bank
Amount: $ 500 mn
Coupon: 2.75%
Tenor: 5 yrs
To finance eligible
Green projects,
including mass
transportation & RE
projects
Issuer: Yes Bank
Amount: ` 3.15 bn
Coupon: 8.95%
Tenor: 10 yrs
Issued under the RBI
guidelines for
issuance of long term
infrastructure bonds
by banks; To finance
RE projects
(Aug 2015)
RE: Renewable Energy
25
Bond details
•
•
•
•
IFC was the sole
investor for the
entire issue size.
Green bonds: Indian experience (2/2)
Issuer
(Sep 2015)
(Nov 2015)
(Feb 2016)
(Mar 2016)
Bond details
End use
Remarks
•
•
•
•
Issuer: CLP India
Amount: ` 6.00 bn
Coupon: 9.15%
Tenor: 3/4/5 STRPP
To fund capital
expenditure of RE
projects
•
•
•
•
Issuer: IDBI Bank
Amount: $ 500 mn
Coupon: 4.25%
Tenor: 5 yrs
To finance eligible
Green projects as
per its internal green
bond framework
•
•
•
•
Issuer: Hero Future
Energies
Amount: ` 3.00 bn
Coupon: 10.75%
Tenor: 3/6 yrs
Proceeds allocated
to assets that
comply with the
Climate Bonds wind
eligibility criteria
First Indian issuer to
issue a Climate
Bond certified green
bond; verified by
KPMG
•
•
•
•
Issuer: PNB HFL
Amount: ` 5.00 bn
Coupon: 8.02% s/a
Tenor: 5 yrs
To finance green,
energy efficient
buildings
IFC was the sole
investor for the
entire issue size.
First corporate
Green bond issue in
India.
RE: Renewable Energy; STRPP: Separately Tradeable & Redeemable Principal Parts
26
Market mechanism for large borrowers





27
RBI discussion paper on framework for enhancing credit
supply for large borrowers through market mechanism
Objective: To reduce concentration risk for banks &
increase issuer diversity; ; to be effective from FY2018
Borrowers, having an aggregate fund-based limits above
INR 250 billion (~USD 372 billion) from banking system in
FY2018, needs to raise at least 50% of its incremental
annual funding from capital markets
Threshold for definition of large borrowers to be
progressively reduced to INR 150 billion (~USD 223 billion)
in FY2019 and to INR 100 billion (~USD 149 billion) in
FY2020
Banks to set aside additional capital for lending beyond
threshold limits
Useful websites
Name of entity
28
Short name
Website
Reserve Bank of India
RBI
https://www.rbi.org.in
Securities & Exchange Board of India
SEBI
http://www.sebi.gov.in
Insurance Regulatory & Development Authority of India
IRDAI
https://www.irda.gov.in
Pension Fund Regulatory & Development Authority
PFRDA
http://www.pfrda.org.in
Clearing Corporation of India Ltd.
CCIL
https://www.ccilindia.com
Fixed Income Money Market & Derivatives Association of India
FIMMDA
http://www.fimmda.org
Association of Mutual Funds in India
AMFI
https://www.amfiindia.com
PRIME Database
PRIME
http://www.primedatabase.com
National Securities Depository Limited
NSDL
https://nsdl.co.in
Central Depository Services (India) Ltd.
CDSL
https://www.cdslindia.com
National Stock Exchange
NSE
https://www.nseindia.com
Bombay Stock Exchange
BSE
http://www.bseindia.com
Ministry of Finance
MoF
http://www.finmin.nic.in
Ministry of Corporate Affairs
MoCA
http://www.mca.gov.in
Ministry of Statistics & Programme Implementation
MoSPI
http://mospi.nic.in