Skip to main content

Letter to BS: Investors shun bonds of banks under RBI's PCA

By
Letter to BS: Investors shun bonds of banks under RBI's PCA
For the first time, even the government guarantee is being viewed warily by promoters who wish to study their liquidity ratings and credit worthiness before investing
This refers to “Investors shun bonds of banks under PCA” (May 18). In an environment of investor distrust in the banking system, a drop in investment in bonds has compelled the Reserve Bank of India (RBI) to purchase the same from the market to create liquidity by way of open market operations. Mounting non-performing assets (NPAs) contributed by poor advances recovery, injudicious lending and sizeable frauds have subjected public sector banks (PSBs) to colossal losses and a consequent fall in market image.
PSBs have, for long, symbolised security for the investor in view of sovereign protection. For the first time, even the government guarantee is being viewed warily by promoters who wish to study their liquidity ratings and credit worthiness before investing. The current scenario of inadequate liquidity and the lack of capital adequacy creates a hesitation to invest in the capital of PSBs.
There is non-availability of core securities for PSBs in the primary market, namely Tier-1 capital, as investors are buying back bonds. Tier-1 capital is a must for a strong capital base to satisfy capital adequacy norms. Tier-2 investments or the secondary line of investment are also not readily available even when bond prices are low as these subordinate investors are wary of erosion of capital.
This has, in many cases, restricted PSB's ability to lend and the RBI has accordingly laid constraints on some of them as part of its Prompt Corrective Action (PCA) measures.The open market operations of the RBI will be a temporary healing measure to reinfuse confidence in investors and strengthen the capital base.
The Economic Times, New Delhi, 21st May 2018

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more