India Ratings and Research (Ind-Ra) has published the February 2021 edition of its credit market tracker. The report comments on the systemic and market liquidity with insights on interest rates transmission, short-term yields and aggregate mutual fund sectoral debt exposure. The tracker highlights the monthly changes in liquidity of the banking system, trends in debt and money markets along with agency’s activity heat-map.
Ind-Ra has upgraded its FY21 credit growth estimates to 6.9% from 1.8%, given the improved economic
environment in 2HFY21 and the government of India’s (GoI) focus on higher
spending especially on infrastructure. Amid the pandemic, the credit offtake in
the banking system has remained muted, which led to lesser issuances of certificates
of deposits (CDs). The CD issuances for January 2021 increased for public
sector banks, whereas that for private banks have remained muted. Concurrently,
the CD yield across maturities was confined to a narrow range, amid subdued
issuances.
The issuances of commercial paper (CP) by corporates have fallen,
due to a lesser requirement amid fewer rollovers. The CP yields however have
largely seen an upward revision, owing to the Reserve Bank of India’s
announcement of the restoration of liquidity management operations.
Furthermore, demand from fund houses for corporate bonds and short-term funds has
increased by INR52 billion and INR10 billion, respectively. On the other hand,
CP issuances by non-banking financial companies and housing finance companies
have remained encouraging, both in terms of total amount and volumes. The
agency believes that the normalisation of economic activities and a conducive
rate environment remain supportive for this segment.
On account of the excess liquidity in the system, a similar
trend has been observed in CD-overnight index swap negative spread which is
showing green shoots in the credit demand.
The net foreign portfolio investments in equity declined in January
2021, whereas the net investments in the debt segment was around negative INR25.18
billion. India along with other emerging countries such as Taiwan and South
Korea saw a large sell-off by foreign portfolio investors during the month.
Investments by mutual funds in non-convertible debentures have
improved; on the other hand, investments by mutual funds in CPs and CDs have
declined, in banks and corporates specifically.
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