India Ratings on Thursday said that any broad-based or strong recovery in corporate capital expenditure was unlikely in the upcoming financial year 2026 (FY26) due to uncertainty of domestic and external demand. The uncertainty is adversely affecting the overall corporate sector capex. Interest rates on credit are not the primary deterrent to decisions about capital expenditure, said Soumyajit Niyogi, director, core analytical group, Ind-Ra, in a webinar on the credit market outlook.
Union Finance Minister Nirmala Sitharaman's call for making lending rates affordable may not resonate anytime soon as banks still struggle with margin compression, and await clues from the Reserve Bank of India (RBI) on liquidity and rate action. Hinting that any lending rate cut was some time away, State Bank of India (SBI) managing director Vinay M Tonse said there was still some aggression in the market regarding deposit pricing.
The need for money among banks, especially for short-term funds, may turn more intense in the last month of the financial year to feed the demand for capital for tax payments and meet year-end targets. The mobilisation of funds via the certificate of deposits (CDs) has seen a threefold increase to over Rs 60,000 crore in the fortnight that ended February 23 from around Rs 20,000 crore in the fortnight of January 26, 2024, according to the Reserve Bank of India (RBI) data.
The Reserve Bank of India's (RBI's) decision to withdraw the incremental cash reserve ratio (I-CRR) is expected to benefit banks during the festival season. They are likely to increase deposit rates by up to 25 basis points (bps) in select maturity buckets. The rise in demand for funds to cover tax payments and meet quarter-end business targets could influence rate decisions by banks, according to bankers and money market executives.
The Reserve Bank of India's (RBI's) outstanding net forward purchases of US dollars fell by more than 50 per cent from the last quarter of FY22 to $30.86 billion in the June quarter (Q1). The net forwards position was at $65.79 billion at the end of the last fiscal year. The purchases fell by $18.33 billion in June as the central bank intervened in both the forwards and the spot market in order to protect the rupee from excessive depreciation in the face of a widening trade deficit.
The Reserve Bank of India (RBI) will stay away from changing key rates - including the reverse repo rate - this fiscal in the backdrop of Omicron. However, it will continue to shape the rate movements through liquidity market operations. Soumya Kanti Ghosh, group chief economic advisor, State Bank of India, said whether Omicron surge or not, there is not going to be any hike this year. However, the central bank may continue to shape rates through market operations.
Surplus liquidity in the banking system as measured by absorption of excess funds by the Reserve Bank of India (RBI) fell sharply at the end of the last week due to outflows on account of advance tax payments. According to the RBI data, the net liquidity absorbed by the central bank on September 16 was at Rs 3,243.57 crore, much lower than the average of Rs 56,809.92 crore in the preceding four days of the week. The average absorption of funds by the RBI so far in September is at Rs 1.13 trillion, against the average of Rs 1.2 trillion in the previous month, the data showed.
Liquidity in the banking system has slipped into a deficit for the first time in three weeks, prompting banks to borrow the largest quantum of funds from the Reserve Bank of India (RBI) in around a month and a half. The key catalyst for the sudden tightening in liquidity was due to outflows on account of advance tax payments, which occur towards the end of a quarter. Analysts also cited other factors such as a currency leakage and possible interventions by the RBI in the foreign exchange market, which contributed to the tighter liquidity conditions.
After two years of a record low interest-rate regime, Indian corporate houses are experiencing a sharp and abrupt increase in funding costs. With the Reserve Bank of India last month making an unequivocal turn towards policy tightening amid high inflation, firms looking to tap the capital markets for funds are ending up shelling out more. The yield on the benchmark triple-A-rated corporate bonds maturing in three years has climbed 98 basis points (bps) since the policy rate hike in May. It was last at 7.47 per cent, Bloomberg data showed.
On Friday, the rupee fell to its 26-month low at 66.89.
RTGS is used to transfer large sums, the minimum amount being Rs 2 lakh. This mode is used primarily to facilitate trade and market transactions. The primary beneficiary would be the capital markets.
If Reliance has to pay about one percentage point more for short-term money, the bond market could be out of bounds for many lower-rated firms after some time.
The bond market is not in a mood to reason with the Reserve Bank of India (RBI) on keeping yields low. The 10-year bond yields continued to rise for the fourth straight session to close at 6.202 per cent from its previous close of 6.135 per cent. The yield was at 6 per cent a week ago. The RBI wants the yields to remain at 6 per cent, but bond dealers say the central bank will have to step up its bond-buying programme.
The volume in the anonymous trading platform, NDS-OM, was Rs 7,210 crore - less than half the normal volume, but not as bad as the start of the day indicated.
In February, FPIs sold $421 mn in debt; in March they have sold $133 mn so far
For current financial year, govt plans to borrow Rs 2.88 trillion in the first half of 2018-19, out of Rs 6.05 trillion planned for entire year
Dealers say foreign investors are now taking keen interest in lower-rated corporate bonds, too
The main reason was that CPI inflation would likely remain below 4 per cent till July.
Even if RBI partially replaces the stock of the high value notes, RBI will have to incur thousands of crores of rupees in cost, say economists.
According to Soumya Kanti Ghosh, chief economic advisor of the State Bank of India group, a 50 bps rate cut is a possibility, but 25 bps is more likely.
Such cold-shoulder by banks also indicates a credit freeze that is hard to overcome, unless the government comes out with credit guarantee schemes for loans given by banks. Since that is not happening, and there is no indication of that too, banks are not willing to listen to RBI prodding.
Central bank moves to infuse liquidity into bond market to help boost sentiment.
The move will have cascading effects for lot of related sectors
Experts said the new framework has ensured that the focus has moved to creditor protection from debtor protection.
However, RBI would continue to nudge banks to cut lending rates
While selling started in April, it has intensified this month, with FPIs pulling out $1.1 billion and $2.5 billion from equities and debt market, respectively
Rupee, bonds may see knee-jerk reaction, as Urjit Patel is considered an inflation warrior
Lower inflation, FCNR(B) outflows likely to influence central bank decision
The cutback on export credit refinance facility is another step towards a shift away from sector-specific liquidity allocations.
I-T lens on current account deposits over Rs 12.5 lakh. All the news and more post demonetisation.
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