A Fintech Solution to Deepening India’s Debt Markets

Traditionally, the state of economic development of a market is a function of the depth of its debt market. Debt is the easiest and the most widely available form of growth capital for enterprises.  A deep and vibrant debt market helps in the growth of public and private sector enterprises, thus reducing the pressure on direct government intervention. 

However, Indian debt markets lag developed economies significantly. Compared to a global debt/GDP of 149%, the Indian debt/GDP (bank credit and corporate bonds) remains 63%. Availability of debt is difficult for entities lower on the rating curve in India due to a lack of depth in the market. To provide perspective, in the United States, entities with the AAA/AA ratings hold only a 7% share in rated loans and bonds, while in India, these entities have a whopping 68% share. 

The depth of debt markets in the US also reflects the deeper capital markets with substantial participation from its retail investors as well. In India, the capital markets have not evolved, and it’s essentially the loan market predominantly for lower-rated entities, thereby restricting the growth of capital markets and limiting scale. The loan markets are also dominated by banks that restrict the end-use and structure of the facility quite significantly, all of which result in a shallow market benefitting larger and highly rated entities.

Given this backdrop, the role of the corporate bond market in financing India’s growth aspirations has become more critical, especially after the pandemic. We have a real opportunity to deepen the debt markets and pave the way for economic growth and recovery in our country. 

For decades, this has been held back due to the absence of underlying infrastructure to electronify and digitise debt delivery. It doesn’t come as a surprise that the corporate bond market, after all these years, is still devoid of an automated order matching exchange, which for the equity markets, is sitting even on phone-based applications of millions of Indians. We are still scratching the surface when it comes to concepts of asset-backed securitisation or even peer-to-peer lending, as the reconciliation, tracking and regulatory reporting at the granular level of the individual asset is a nightmare for even the largest of the lenders. Several prospective investors, including offshore sources of capital, stay away from India’s otherwise safe structured finance market, owing to such infrastructural and technological issues. 

At CredAvenue, we have taken on the mantle to revolutionise and deepen debt markets, not just in India but even globally, by providing the most comprehensive range of debt product suites to all borrowers. We are creating the infrastructure from first principles, and we are bringing in the efficiency and swiftness of a two-sided marketplace to work on top of this pioneering infrastructure. 

CredAvenue currently has over 2,200+ Corporates and 1,000+ Lenders and has facilitated over INR 65,000 Crores debt volumes. CredAvenue is an organisation with an ambitious mission to deepen and power the $120 trillion global enterprise debt market to unlock a GDP multiplier and create massive economic value. We also offer portfolio monitoring and management to our users, as a SaaS offering, to ensure the quality of the portfolio can be easily monitored and Early Warning Signals are acted upon without delay.=

We currently have a portfolio of 5 platforms catering to most of the debt requirements of both borrowers and investors –

1. CredLoan (Loan Platform) – Term Lending and working capital solutions for enterprises
2. CredCoLend (Origination platform) – For retail lending under a partnership model 
3. Plutus (Bond Platform) – Bond Issuance and Investments for institutional and retail participants
4. CredSCF (Supply Chain Platform) – Trade Financing solutions
5. CredPool (Pool Platform) –  Securitisation and portfolio buyouts

Each of these products works as a 2-sided marketplace and helps solve some critical issues faced by the Indian debt markets. Some of them are:

• Lack of one source of truth

One of the key concerns of investors has been information asymmetry and data sanity. While there is a substantial amount of digital data footprint available for large corporations, there is hardly any mechanism to seamlessly collate all such data and glean meaningful insights on the credit of the borrowing enterprise. This ultimately leads to a lack of depth in the corporate debt market in India, leaving very few takers for corporate credit.  Our infrastructure solves for this structurally by incentivising borrowers to provide periodic proprietary information that is combined with public information sources to become a credit library for lenders looking at any borrower.

• Inefficient credit delivery

The market is primarily driven by one-to-one negotiations on the pricing of most instruments, which doesn’t lead to comprehensive price discovery. When multiple lenders interact with a borrower based on the credit information available, it leads to price discovery and efficiency for both the borrowers and the investors. Time to close a deal also reduces drastically in a marketplace setting. 

• Lack of efficiency

The debt market remains highly inefficient, with manual and repetitive processes that prolong the timeline of concluding a deal. By using technology, CredAvenue has removed/drastically reduced a lot of inefficiencies (workflow management, generation of deal documents, deduping of contracts, generation of credit appraisal memos etc.) involved in closing a deal. This has enabled borrowers and lenders to focus energies on key deal terms/contours.