How RBI measures helped democratise fundraising

The central bank’s liquidity boosting measures are beginning to have a positive impact on borrowing costs while making funds available to companies rated relatively lower than the best in business, helping democratize fundraising beyond triple-A entities.

The share of less than triple A rated companies has risen in the June quarter to as high as a quarter from less than 19 percent, Reserve Bank of India (RBI) research showed.

“While the corporate bond market in India has traditionally been a bastion of AAA-rated entities, the stylised evidence suggests that the recent Reserve Bank measures were successful in rekindling investors’ risk appetite,” RBI said in the research paper.

RBI policy measures aimed at calming financial markets have brought down funding costs in the corporate bond market to decadal lows.

It also eased the access of non-AAA rated entities, and led to record primary issuances, RBI said.

Yields have dropped and the spreads have compressed despite FPI outflows of around $3 billion from corporate bonds in 2020, show RBI data.

Bond sales by non-bank lenders have nearly doubled in the first quarter of FY21, indicating evident revival of investor confidence in suppliers of crucial credit to last-mile users despite the protracted lockdown.

These financiers together raised Rs 89,433 crore, compared with Rs 49,625 crore garnered last year in the June quarter, ET reported on June 23 citing data from JM Financial.

RBI announced dedicated liquidity windows – known as Long Term Repo Operation or LTRO and Targeted LTRO or TLTRO.

In the months when deployment of funds availed by banks under LTROs/ TLTROs was underway, even non-AAA rated entities were able to access the market.

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In February, when the LTROs were conducted, the share of non-AAA rated issues increased to 19% from 11% in January.

With funds flowing into NBFC or MFI bonds, commercial papers, lower-rated last-mile-lenders gained. The share of non-AAA rated borrowers rose to 25% in June from 19% in May.

Several measures have been announced for Micro, Small and Medium Enterprises (MSMEs) to ensure that they are not deprived of survival funding and growth capital.

“As a result, markets have remained resilient, liquid and stable, establishing conditions for a finance-led recovery of the economy ahead of the revival of demand,” RBI said.



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