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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 securities of any entity. ICICI Bank and/or its Affiliates ("ICICI Group") make no representation as to the 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 you understand the transaction and have made an independent assessment of the appropriateness of the transaction in the light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. In the United Kingdom, this presentation is being distributed only to, and is directed only at, persons who are 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. This presentation is being distributed by ICICI Bank Limited only to, and is directed only at: (a) persons who have professional experience in matters relating to investments who fall within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and (b) persons to whom it may otherwise lawfully be communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such investments will be available only to or will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Persons distributing this presentation must satisfy themselves that it is lawful to do so. 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