India rating & Research (Ind-Ra) has upgraded its FY21 credit growth estimate to 6.9% from 1.8%, given the improved economic environment in FY21 and the government focus on higher spending especially on Infrastructure.
Amid the pandemic, the credit offtake in banking system remained muted, which led to lesser issuances of certificates of deposits (CDs).
The CD issuances for January 2021 increased for public sector banks but remained muted for private banks. Concurrently, the CD yield across maturities was confined to a narrow range amid subdued issuances.
The issuances of commercial paper (CP) by corporates fell due to a lesser requirement amid fewer rollovers. The CP yields, however, saw an upward revision due to the Reserve Bank of India’s announcement of the restoration of liquidity management operations.
Besides, demand from fund houses for corporate bonds and short-term funds increased by Rs 5,200 crore and Rs 1,000 crore respectively. On the other hand, CP issuances by non-banking financial companies and housing finance companies remained encouraging, both in terms of total amount and volumes.
Ind-Ra said the normalisation of economic activities and a conducive rate environment remain supportive for this segment. On account of the excess liquidity in the system, a similar trend was observed in CD-overnight index swap negative spread, which is showing green shoots in credit demand.
Net foreign portfolio investments in equity declined in January 2021 while net investments in debt segment totalled negative Rs 2,518 crore. India along with other emerging countries like Taiwan and South Korea saw a large sell-off by foreign portfolio investors during the month.
Investments by mutual funds in non-convertible debentures have improved. On the other hand, said Ind-Ra, investments by mutual funds in CPs and CDs have declined in banks and corporates specifically.