At least 10 new financial technology platforms have sprung up during the pandemic with the aim of grabbing a share of the $1.9 trillion market for bank time deposits. They promise much higher interest rates through putting money into company bonds, which are generally seen as riskier higher-yielding debt.
The firms are riding on efforts by the Reserve Bank of India to encourage retail investment in sovereign debt as it grapples with the government’s record borrowing plan. The risks, of course, are larger for those investors who chose to venture into corporate bonds and with lightly regulated platforms that allow investors to take part with as little as 10,000 rupees ($131).
The new startups are seeking to reassure investors they are doing all they can to protect their clients. The country has seen its share of credit crises, with previous events including the collapse of infrastructure financier IL&FS in 2018, Franklin Templeton’s decision to wind up some of its India debt funds in 2020, and the restructuring of Yes Bank in the same year that resulted in bondholders losing their entire investments.
“We handpick bonds, study the cash flow of the issuing company, make a thorough risk assessment before offering any corporate bond,” said Ajay Manglunia, managing director and head of institutional fixed income in Mumbai at JM Financial Products Ltd., which runs BondsKart.com. Manglunia was formerly head of the bond markets team at Edelweiss Financial Services Ltd., one of India’s largest non-bank financial firms.
The new companies offer a wide range of bonds to their customers, stretching from those issued by the country’s top consumer goods lender Bajaj Finance Ltd., to Muthoot Fincorp Ltd., an A+ rated non bank financial company.
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Some of the portals are offshoots of financial firms. For example, Yield, an online platform, was begun last year by a unit of Axis Bank Ltd., the largest rupee corporate bond arranger from 2007 to 2021. TheFixedIncome.com is part of Tipsons Group, one of the biggest players in the Indian debt market.
Many of the parent firms are involved in privately placing bonds issued by companies. The offshoots then sell on these positions to their customers, while also getting their stock from other banks and the secondary market.
‘Slightly tricky’
Despite the pledges of due diligence, analysts say investors should remain wary.
“Some of these platforms are not just selling plain vanilla bonds but also structured debt, which may be slightly tricky for individual investors especially in a country where financial literacy is very low,” said Soumyajit Niyogi, a director at India Ratings & Research Pvt. in Mumbai. “It runs the risk of losing money completely, therefore a proper assessment of risk is necessary.”
As yet, retail participation remains tiny due to the perceived lack of transparency and an unwillingness to take extra risk. In addition, most privately-placed notes have a minimum face value of 1 million rupees, putting them beyond the reach of all but high-net-worth individuals. Still, returns offered from these websites can run up to 16%, compared with less than 6% for bank time deposits maturing in one-to-three years.
“There’s a big bank deposit market out there and even if we were to get a fraction of that, it will result in huge individual participation in the corporate bond market, which is currently minuscule,” Puneet Aggarwal and Ankit Gupta, co-founders of BondsIndia.com in Mumbai, said in a joint interview.
Selling corporate bonds to retail investors is still in its infancy across the rest of Asia too. BondEvalue, a financial technology firm based in Singapore, has started a fractional bond exchange that allows investors to buy and sell in denominations of $1,000 instead of the typical $200,000. In China, strict regulations make it difficult for individuals to buy any high-yielding corporate debt.
