Disclaimer: We may earn a commission if you make any purchase by clicking our links. Please see our detailed guide here.

Follow us on:

Google News

In the face of a decelerating economy, RBI urges foreign investors to snap up corporate bonds

Bhaswati Sarkar
Bhaswati Sarkar
She likes to lose herself in music and daydreams quite often. Travelling excites her and photography is her passion- nature is her favorite subject. Writing is cathartic for her. A happy-go-lucky kind of person, she tries to remain calm and serene through daily life.

Join the Opinion Leaders Network

Join the Opinion Leaders Network today and become part of a vibrant community of change-makers. Together, we can create a brighter future by shaping opinions, driving conversations, and transforming ideas into reality.

Reserve Bank of India (RBI), the central bank of the country, has been looking for ways to help bad-loans burdened Indian banks, and at a recent symposium hosted by the Institute of Indian Economic Studies in Tokyo, RBI has urged foreign investors to acquire corporate bonds in order to mobilise growth in the Indian economy.

India’s economical growth of 6.6% in the October-December quarter has been described as very slow.

According to the Federation of Indian Chambers of Commerce & Industry (FICCI), the lagging of domestic consumption is responsible for a weakening global economic environment.

And now in the January-March quarter of 2019, economical growth of the country declined sharply to 5.8%.

While the US-China trade war has proved to be detrimental to the Indian economy which led to the RBI cutting its key lending rate last week, Indian banks are facing a precarious situation with bad loans worth over $150 billion, and the ensuing clean-up exercise is proving to be quite testy.

According to Viral Acharya, deputy governor of RBI, who spoke at the Tokyo symposium on Monday, the repo rate cut to 5.75% will be transmitted immediately through bond markets while its transmission through banks to the real economy would take some time. 

The transmission of monetary policy is faster through the bond markets… It may take two quarters or three quarters before the policy actions of the central bank are transmitted to the households and the companies.- Viral Acharya, deputy governor of RBI

Moreover, the crisis that was faced last year by Infrastructure Leasing and Financial Services, India’s largest project finance company, led to the Indian government taking control of IL&FS which proved to be detrimental for foreign investors and shareholders.

Acharya stated that India has been taking steps to provide better protection for investors such as –

A new bankruptcy code (passed 2016) that aims to ensure that defaults on bank loans and bonds are announced in a more timely manner;

The creation of a market for distressed bank loans and a housing securitization market through a greater standardization of loan contracts.

Moreover, through the opening up of its debt market to foreign investors, India has raised the limit on foreign bond ownership to $45 billion.

The hope is that as [reform] takes hold, it will also lead to issuance and trading in lower rated corporate [bonds]. – Acharya

Acharya moreover expresses hope that India would see more Japanese investments in the near future – “There are many Japanese institutions that are already investing in India, and India is looking forward to more such investment by foreign portfolio investors.”

Analysts are of the opinion that the Indian Prime Minister Narendra Modi should revamp the financial industry that is largely dominated by massive state-owned banks that have been burdened by a relatively high level of non-performing loans and thus are unwilling to lend easily and in the process starves the private banks of the necessary liquidity.


Partner With Us

Digital advertising offers a way for your business to reach out and make much-needed connections with your audience in a meaningful way. Advertising on Techgenyz will help you build brand awareness, increase website traffic, generate qualified leads, and grow your business.

Power Your Business

Solutions you need to super charge your business and drive growth

More from this topic