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Vydianathan Ramaswamy, director, ratings at Brickwork Ratings, said that the extension of deployment period to 45 days gives banks a better lead time to lend to a wider set of non-banks.

• Faculty Name Prof. Ananth Narayan
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Experts say that this could be a new strategy by the government where a good part of the potential additional borrowing could be conducted via short-term instruments given the prevailing high liquidity conditions.

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How to make banks lend? Perhaps the Reserve Bank of India (RBI) needs an updated handbook of instructions with this title.

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Banks are resisting the growing clamour for much-needed working capital to breathe life into a moribund economy by refusing to relent on their creditworthiness criteria while approving loan applications.

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With continuous selling in central government securities by foreign portfolio investors (FPIs) due to persistent risk aversion in the wake of the Covid-19 crisis, general category FPI utilisation of investment limits in G-secs have fallen to 52.31% as on April 13 compared to the peaks of over 75% at the beginning of 2020.

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The government on Thursday paid a high 6.5299% to mop up 10-year money in a sign companies may need to fork out more for their borrowings. The rate was higher than the yield on the benchmark which closed the day’s session at 6.49%, five basis points higher than Wednesday’s close and an over two-month high. The rising risk-free rate threatens to drive up borrowing costs for companies many of whom are already finding it hard to borrow at affordable rates.

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Norway’s move to sell emerging market bonds, held through the planet’s biggest sovereign wealth fund, to help revive the home economy has put Mumbai’s debt markets on the knife’s edge.

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Bond yields could rise further this week as state loans and gilts worth some Rs 56,500 crore hit the market. Ananth Narayan, professor-finance, SPJIMR, told FE the amount is an all-time high for a week and that the market is nervous. “Besides LIC, one would expect banks that are sitting on excess liquidity to take up some of the supply. However, the sizeable duration risk could deter banks,” he observed.

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After the announcement of the first half borrowing calendar by the government on Tuesday, bond market experts say there could be some amount of disappointment in the market as market participants were expecting much more clarity in terms of the potential additional borrowing in the context of the COVID-19 crisis and the subsequent economic slowdown.

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The instant reaction to Friday’s decision by the Reserve Bank of India (RBI) of granting a three-month moratorium on all term loans was welcomed by lenders. But with non-banking financial companies (NBFCs) faced with retiring their short-term liabilities, it appears the joy could be short-lived.

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Paving the way for Indian bonds to become part of a global bond index, the Reserve Bank of India (RBI) on Monday notified five government securities (gilts) that would be eligible for investment by non-residents without any restrictions under the Fully Accessible Route (FAR).

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India’s central bank should directly start monetizing the government’s fiscal deficit in efforts to fight one of its worst economic crisis, said Ananth Narayan, the former South Asia head of financial markets at Standard Chartered Plc.

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As the coronavirus outbreak takes a toll on the economy, the central government has stepped up its efforts to tackle the impact. The Finance Minister Nirmala Sitharaman announced an economic relief package called the ‘PM Gareeb Kalyan Scheme’ of Rs 1.70 lakh crores which would include cash transfers to the poor and a whole host of measures to provide immediate relief to the poorest of the poor.

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The lockdown across the country to reduce the spread of Covid-19 is having a massive impact on business activity. This portends a big hit on incomes of individuals and corporations alike.

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In the wake of Covid-19, the bond market is facing significant stress in recent times while the rupee has taken a hit led by FPI outflows. Ananth Narayan, professor-finance at SPJIMR, tells Bhavik Nair in an interview that credit and fixed income markets are strained and need help.

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With the markets significantly down, the already slowing economy futher getting impacted by the coronavirus scare, what is it that the country’s central bank and central government can do to help better the situation and more importantly what steps need to be taken to tackle the finance dislocation that is underway in the debt markets is the big question.

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Continuing forex outflows from the stock and bond markets and a strengthening dollar sent the rupee to new lifetime lows on Thursday. The Indian currency closed at 74.98 against the greenback, 76 paise lower than Wednesday’s close. During the day, it fell to levels of 75.31 against the dollar, Bloomberg data showed.

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The rupee ended the day at 74.22 to the dollar against Wednesday’s close of 73.65 to the dollar. As the rupee continued to depreciate, the Reserve Bank of India (RBI) has announced a six month US dollar sell and buy swaps to provide liquidity to the forex market.

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The spread between the one-month rupee non-deliverable forwards (NDFs) and the one-month rupee onshore forwards came down significantly on Wednesday even as world equity markets and crude prices bounced back after a steep plunge early this week, subsiding the insatiable demand for dollars in the overseas market.

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