Deposit of ₹2000 notes, rise in RBI dividends to improve short-term liquidity
There will be a short-term rise in liquidity due to increase in RBI dividends and deposits of ₹2000 notes till September, predicted India Ratings in its latest report
PremiumThere will be an improvement in short-term liquidity due to an increase in RBI dividends and deposit of ₹2,000 notes by banks till September, predicts India Ratings in its latest edition of the monthly credit market tracking report.
In its report, the rating agency commented that there will be a moderate rise in credit spread, whereas bank lending rates are expected to rise further due to the incremental cost of deposits.
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“Overall, there could be benign credit growth and healthy credit appetite in FY24. Issuances in the capital market are likely to gain traction, while credit growth in banks will slow down, albeit moderately," stated the rating agency in its report.
The report highlighted that the Banking system liquidity declined as of 25 May 2023 to around ₹500 billion on average. However, there is a possibility of ease in liquidity pressure due to a rise in RBI dividends and deposits of ₹2,000 banknotes.
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“Decline in Banking System Liquidity; Pressure to Ease: Banking system liquidity declined as of 25 May 2023 to around INR500 billion on average (April 2023: around INR1 trillion). Ind-Ra expects the transfer of the Reserve Bank of India’s dividend to the tune of INR870 billion to ease liquidity pressure in the system for the foreseeable months. The agency also expects the deposit of INR2,000 banknotes by 30 September to improve liquidity in the system, albeit for a short period," said India Ratings in its report.
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The monthly report also observed that inflows in the equity market as of May 25, 2023, rose to $4.2 billion. the rise in FDI was led by stability in domestic and US rates. The rating agency also talked about the chances of overall incremental demand for certificates of deposit (CD) issuances dropping in June and July. Corporations were way ahead of non-banking finance companies in terms of raising funds through commercial papers (CP). The report stated that corporates raised ₹357 million through CP, whereas, NBFCs raised ₹314 billion through CP issuances.
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