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Business News/ Industry / Banking/  Cost of borrowing lowest in a decade as liquidity remains abundant
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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

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 (REUTERS)Premium
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 (REUTERS)

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.

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 24 Jul 2020, 06:29 PM IST
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