One stark feature of India’s bond markets so far has been the huge borrowing by the government which pushes up yields for corporates. However, this decades-old trend is about to change.

For the first time, the demand for bonds is rising because of an over 20% annual growth in insurance and pension fund kitties as well as demand from foreign investors because of index inclusion and banks, who are faced with the liquidity coverage ratio (LCR) requirements.

In a detailed discussion with CNBC-TV18, Vibha Padalkar, MD and CEO of HDFC Life Insurance Company; Rajkiran Rai G, MD of National Bank for Financing Infrastructure and Development (NaBFID), Amit Jhingran, MD and CEO of SBI Life Insurance Company and Nilesh Sathe, Former Member of Insurance Regulatory and Development Authority of India(IRDAI) and Bahram Vakil, Partners at AZB discussed whether insurance companies could allocate some of their long-term funds to infrastructure projects.

Rai explained that there is now a strong case for insurance companies to invest in infrastructure, as India has ample long-term resources available domestically. He stated that in the past, the focus was on seeking resources from abroad, but now these resources are more abundant in India, even surpassing bank deposits, with new funds growing each year.

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Meanwhile, Padalkar said that insurance companies must ensure there is no asset and liability management (ALM) mismatch. “The golden rule for insurance companies is that you cannot have an ALM mismatch. We are not looking to, unlike maybe other financial products, make that extra so that you have yield pick-up. Yes, we do that on our shareholder funds, but not on the policyholder funds because we are in fiduciary responsibility,” she added.

For the entire discussion, watch the accompanying video

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