The savings of India’s public – channeled through life insurers, provident and pension funds – are increasingly getting ploughed into long-term debt, leading to a structural change in the costs of borrowing for Prime Minister Narendra Modi’s government, reports Bloomberg.
India’s yield curve has flattened markedly as insurers and pension funds snapped up 10-to-40 year debt, with HDFC Life Insurance saying that market participants are asking the central bank to sell more longer-dated bonds. Their growing footprint means that the state will be less reliant on banks over time, while reducing anxiety among traders over how Modi’s infrastructure-building spree will be funded.
“Insurance companies have been one of the key investors in long-maturity bonds,” said Badrish Kulhalli, head of fixed-income at HDFC Life. “As the penetration and reach of distribution channels increase, we expect that the growth in the sales of the traditional products to continue to grow, and consequently the demand for long-maturity bonds.”
