Cost of borrowing lowest in a decade as liquidity remains abundant
Interest rates on three-month commercial papers or CPs for non-banking financial companies (NBFCs), three-month CPs (non-NBFC) and three-month certificate of deposit (CD) have softened by around 320 basis points
Mumbai: The cost of borrowing for Indian companies through the financial markets have never been so cheap in the last 10 years, the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR) on Friday.
“Borrowing costs in financial markets have dropped to their lowest in a decade on the back of abundant liquidity," it said.
Interest rates on three-month commercial papers or CPs for non-banking financial companies (NBFCs), three-month CPs (non-NBFC) and three-month certificate of deposit (CD) have softened by around 320 basis points (bps), 365 bps and 472 bps, respectively between 23 March and 30 June. One basis point is one-hundredth of a percentage point.
“The spread of three-year AAA-rated corporate bond over similar tenor government securities has decreased from 320 bps on 26 March 2020 to 114 bps on 26 June 2020 for NBFCs. Lower borrowing costs, coupled with deployment of TLTRO funds, have led to record primary issuance of corporate bonds of ₹2.09 trillion in the first quarter of 2020-21," it said.
Under the targeted long-term repo operations (TLTRO) programme, the central bank had conducted term repo auctions of up to three-year tenor for a total amount of ₹1 trillion for investing in corporate bonds, commercial papers and non-convertible debentures.
The RBI had also brought down the policy repo rate by 115 bps from 5.15% on 27 March to 4% on 22 May.
“The Monetary Policy Committee (MPC) also decided to continue with the accommodative stance for as long as it is necessary to revive growth and mitigate the impact of covid-19 on the economy while ensuring that inflation remains within target," it said.
According to the central bank, the reduction in cash reserve ratio (CRR) led to injection of liquidity of around ₹1.37 trillion into the banking system while enhancement in marginal standing facility (MSF) ceiling enabled them for better management of day to day liquidity.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!