India Ratings and Research (Ind-Ra) has published the April 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 revised its growth estimate for FY22 to 10.1% from earlier forecasted 10.4% amid the second wave of COVID-19. While the number of new cases has rose to almost 4x of the previous high during the first wave in India, the disruption to the economic activity has been lesser than in the first wave, as the government has resorted to localised lockdowns unlike the full lockdown earlier. Though the agency expects that India’s vaccination drive would minimise the impact of COVID-19, the duration would be a function of its pace.
In FY21, the monetary and fiscal measures such as Emergency Credit Line Guarantee Scheme for micro, small & medium enterprises and mid-corporates, targeted long term repo operations, moratoriums and overall systemic support played a critical role in bringing the banking stress down. The foreign portfolio inflows have pulled out INR153 billion from the Indian stock market while the net sell out in debt market has been to the tune of INR40 million. At the same time, the exposure of fund houses in debt funds reduced significantly in March 2021 to INR140 billion.
The issuances of commercial papers (CPs) by non-bank finance companies increased by INR300 billion in March 2021 whereas, the issuances by corporates have fallen to the tune of INR100 billion. Ind-Ra believes that low demand for working capital owing to the protracted recovery is the primary reason for the low CP issuances by corporates. While CP yields have remained stable, the surge in covid-19 cases and associated uncertainties could be dampener.
Moreover, certificate of deposit (CDs) issuances increased in March 2021 by both private sector banks and public sector banks by INR77 billion and INR55 billion, respectively. The increased CD issuances are largely due to a cyclical trend, banks borrow a large amount of money through CDs during the year-end to increase their loan assets.
Net 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
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