India’s Financial Economy: Post 5

  1. Inflation
  2. Reserve Money and the Economy
  3. RBI Measures and Impact on Banking System
  4. Term Premium and Impact on Bond Markets
  1. Corporate Bond Market: AAA 10 Year Yields have come off by 50 bps in this period. Therefore the AAA credit spreads have come down marginally. This channel is critical because bond holders do not have to deal with static liability profile like banks do and are thus the quickest to re-price the cost of new issuances. Since large corporates are ambivalent in borrowing from either the Bond market or Banks, this channel bring competitive intensity to the banking channel and thus forces them to lower rates at a faster pace.
  2. Non-Bank Funding Rate: The NBFC Long Duration Yields have not reduced at all in the entire COVID period. Here we can see that credit spreads' here have gone up. This channel is critical, because a large share of retail credit is serviced by NBFCs and a reduction in Cost of funds for NBFCs would enable them to ultimately charge a lower yield on their loans to consumers and drive credit growth at the ground level. The most important development on this side is that the absolute freeze on the liquidity side of the NBFC segment has actually thawed and since then companies have been able to raise Debt though primary issuances. This has also been helped by equity capital raise that a few large players have done.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store