Page 5 - Banking Finance July 2020
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BANK UPDATE





          BANKING





                                                                               NEWS
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                                                                               NEWS







         Indian banks boost hold-           gives banks, wary of defaults, the abil-  the collateral of investment grade cor-
                                            ity to invest in the debt of top-rated  porate bonds, commercial papers and
         ings of corporate notes            companies.                         debentures held by MFs.

         Banks have boosted their holdings of                                  On April 30, the regulatory benefits
         rupee notes from companies to an all-  RBI and Banks deploy           announced under the SLF-MF scheme
         time high. Total holdings of corporate                                were extended to banks, which de-
         bonds and commercial paper held by  close to Rs 8000 cr to ease       ployed their own resources. While eas-
         local banks surged to a record of al- Mutual Fund liquidity
                                                                               ing the redemption pressure on MFs,
         most 7 trillion rupees ($93 billion) in  Banks and the RBI have deployed close  these measures also helped to increase
         late May, data from the Reserve Bank  to Rs 8,000 crore to ease the liquidity  the trading volume in the secondary
         of India this week show. The central  pressure in the mutual fund industry in  market for corporate bonds.
         bank extended a $50 billion emergency  April and May.
         credit line to lenders in March to spur                               The RBI’s liquidity offer brought some
                                            The data compiled by the RBI shows  degree of comfort in the debt market
         them to boost financing to companies  banks deployed Rs 5,522 crore from
         squeezed by the pandemic and an eco-                                  which was under huge redemption
                                            their own resources under the Special  pressure. Faced with huge redemp-
         nomic contraction caused by steps to  Liquidity Facility for Mutual Funds (SLF-
         contain it.                                                           tions, Franklin Templeton had closed
                                            MF) scheme for Rs 50,000 crore an-  six credit schemes, effectively locking
         Indian borrowers have been rushing  nounced by the regulator. This is in  up Rs 28,000 crore of investors’ money.
         bond deals to market in recent weeks,  addition to Rs 2,430 crore availed from
         after government and central bank  the RBI under the SLF-MF scheme.   RBI needs to revisit policy
         measures to support companies      In March-April 2020, mutual funds
         pushed the average yield on rupee  faced redemption pressure due to vola-  restricting big corporates
         notes to the lowest since 2004 earlier  tility in capital markets. Their woes in- from promoting banks
         this month. Lower-rated companies  tensified after closure of six debt MF  Former RBI deputy governor R Gandhi
         have also benefited from those initia-  schemes by Franklin Templeton MF. On  on Monday said the central bank needs
         tives, with issuance from weaker   April 27, the RBI introduced SLF-MF  to relook at rules restricting large
         names rising to a 15-month high in  with several regulatory benefits in or-  corporates from promoting banks and
         June, rebounding from a plunge in  der to ease liquidity pressure on MFs.  allow single entity to hold up to 26 per
         April and May.                     The funds availed under SLF-MF were  cent by having the necessary safe-
         With India’s central bank forecasting  to be used by banks exclusively for  guards. He said the needs and aspira-
         the economy will contract this fiscal  meeting the liquidity requirements of  tions of the Indian economy make it
         year for the first time in more than  MFs by extending loans and undertak-  necessary to look at sources of large
         four decades, the bond market also  ing outright purchase or repos against  capital from entering the banking fray,

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