Page 5 - Banking Finance July 2020
P. 5
BANK UPDATE
BANKING
NEWS
NEWS
NEWS
NEWS
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,
BANKING FINANCE | JULY | 2020 | 5