Author: root

Payments Banks want RBI to hike max day end deposit balance to ₹5 lakh

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Payments Banks (PBs) want the Reserve Bank of India (RBI) to up the maximum end of the day balance a customer can maintain with them from Rs 2 lakh to Rs 5 lakh in sync with the increase in the deposit insurance cover.

PB executives feel an enhancement in the aforementioned limit will be opportune as the Deposit Insurance and Credit Guarantee Corporation (DICGC) has increased the deposit insurance cover five-fold to Rs 5 lakh.

DICGC insures bank deposits such as savings, fixed, current, and recurring.

Previously, under the Guidelines for Licensing of PBs, issued on November 27, 2014, these banks could hold a maximum day end balance of ₹ 1 lakh per customer. This was in line with the then deposit insurance cover of Rs 1 lakh.

Although the deposit insurance cover was raised to Rs 5 lakh, with effect from February 4, 2020, the maximum balance a customer can hold in a PB at the end of the day has not been increased commensurately.

RBI had doubled the maximum balance a customer can hold at end of the day in a PB to ₹2 lakh on April 8, 2021.

Micro, small and medium enterprises (MSMEs), small traders and merchants can benefit if the maximum end of the day balance per customer is enhanced to Rs 5 lakh as cash flow management will become better, said a top official of a PB.

Further, this can also increase PBs pool of low-cost current account, savings account (CASA) deposits.

“This is the right time to revise the maximum day end deposit limit upwards in view of the changing economic scenario. It will also be in keeping with the increase in the deposit insurance limit,” said the chief of a PB.

RBI Governor Shaktikanta Das, in a statement on April 7, 2021, said that based on a review of performance of payments banks and with a view to encourage their efforts for financial inclusion and to expand their ability to cater to the needs of their customers, including MSMEs, small traders and merchants, it has been decided to enhance the limit of maximum balance at end of the day from ₹1 lakh to ₹2 lakh per individual customer.

Currently, if a customer’s deposit with a PB at the end of the day exceeds Rs 2 lakh, an auto sweep arrangement allows the PB to open a fixed deposit on behalf of the customer with a partner Bank (usually a small finance bank or a private sector bank).

For example, Fino Payments Bank and Paytm Payments Bank have partnerships with Suryoday Small Finance Bank and IndusInd Bank, respectively.

PBs are niche banks that leverage technology for financial inclusion and are aimed at small businesses and low-income households.

According to RBI guidelines, the primary objective of setting up of PBs is to further financial inclusion by providing (i) small savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments / remittance services in a secured technology-driven environment.

Being a nascent business model that requires heavy overhead costs especially at the beginning, most of these banks are yet to turn profitable, per the Report on Trend and Progress of Banking in India 2019-20.

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Tamilnad Mercantile Bank files papers with SEBI for IPO

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C The Tuticorin(TamilNadu)-based Tamilnad Mercantile Bank Ltd has filed a draft red herring prospectus with the Securities Exchange Board of India (Sebi) to raise funds through an initial public offering.

The proposed IPO will comprise a fresh issue of equity worth up to 15.84 million shares and an offer for sale (OFS) of up to 12,505 shares by its existing promoters and shareholders.

About 75 per cent of the net offer has been reserved for qualified institutional buyers (QIBs), 15 per cent is for allocation to non-institutional investors (NIIs), and the remaining 10 per cent will be available for retail investors.

Proceeds from the IPO will be used for augmenting the lender’s tier I capital base.

The company had said that it was planning to raise more than .₹1,000 crore with an IPO.

Axis Capital, Motilal Oswal Investment Advisors and SBI Capital Markets are the book running lead managers for the IPO. Link Intime India is the registrar for the issue.

For FY21, the bank’s net profit stood at ₹603 crore as compared to ₹408 crore in FY20. Its gross non-performing assets (NPAs) were at 3.44% against 3.62% a year ago. Net NPA stood at 1.98% versus 1.8% last year. Its CASA ratio increased to 28.52% from 25.85%.

Total advances stood at ₹31,541 crore in FY21 from ₹28,236 crore FY20. Total deposits stood at ₹40,970 crore (₹36,825 crore). Its total business was at ₹72,511 crore, up 11 per cent from ₹65,061 crore in FY20.

It had 4.18 million customers in Tamil Nadu, which accounted for about 85 per cent of its total customer base. The bank also has a presence in Gujarat, Maharashtra, Karnataka and Andhra Pradesh.

As of June 2021, TMB had 509 branches, of which 106 were in rural, 247 in semi-urban, 80 in urban and 76 in big cities.

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Banking Stock To Buy For 40% Gains As Recommended By Motilal Oswal

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Buy SBI for a price target of Rs 600

The brokerage sees an upside of 40% on the stock of SBI with a price target of Rs 600, as against the current market price of Rs 431.

According to the brokerage the balance Sheet cleansing is largely over and strong asset quality outlook remains.

“State Bank of India’s focus on strengthening its Balance Sheet has enabled a sharp decline in gross non performing assets to Rs 1.3 trillion in FY21 from Rs 2.2 trillion in FY18. Gross non performing assets declined by 43% over the past three years, while PCR increased to 68% at present (85% PCR on the corporate book) from 40% four years back,” the brokerage has said.

Improvement in asset quality

Improvement in asset quality

According to Motilal Oswal, State Bank of India has cumulatively written off Rs 1.5 trillion since FY18.

“The improvement in asset quality has been sharper than most peers, including Private Banks. While 1QFY22 saw a marginal increase, we believe that the Balance Sheet cleansing is largely complete, with the focus shifting to earnings recovery and pursuing growth. Controlled restructuring (0.8%) and SMA book (0.5%) provides a further comfort on asset quality and will drive a sustained reduction in credit cost,” the brokerage has said.

The elephant is set to dance

The elephant is set to dance

According to Motilal Oswal, the elephant is set to dance with RoE to improve to 15%. “State Bank of India earnings in FY21 have been more than the sum of what it did in the preceding five years (FY16-20). Its FY22E earnings will be close to the sum of the past six years (FY16-21). It appears well positioned to report strong uptick in earnings, led by normalization in credit cost. This, along with expected uptick in core operating performance, will further propel earnings growth. We estimate PPOP at 14% CAGR over FY21-23E v/s 6% CAGR (FY18-21), enabling State Bank of India to achieve 15% RoE (decadal high) by FY23,” the brokerage has said.

SBI valuations

SBI valuations

According to Motilal Oswal, mong PSU Banks, State Bank of India remains the best play on a gradual recovery in the Indian economy, with a healthy PCR, Tier I of 11.3%, strong liability franchise and improved core operating profit.

“While business trends were impacted by the lockdowns, loan growth is likely to recover gradually over FY22-23E. Even slippages are expected to moderate meaningfully over 2HFY22 as asset quality remains impeccable in the Retail book. We estimate credit costs of 1.6%/1.3% for FY22E/FY23E. We project RoA/RoE of 0.8%/14.6% by FY23E. Subsidiaries (SBI Mutual Fund, SBI Life, SBI Card, SBI Cap) have exhibited robust performances over last few years, supporting our SoTP valuation. Maintain BUY, with a target price of Rs 600 per share (1.3x FY23E ABV + Rs 190 /share from subsidiaries,” the broking firm has said.

Disclaimer

Disclaimer

The article is informational in nature, which is taken from the brokerage report of Motilal Oswal. Please do consult a professional advisor before you invest in equities. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.



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Reserve Bank of India – Press Releases

Press Releases

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(Amount in ₹ crore, Rate in Per cent)
  Volume
(One Leg)		 Weighted
Average Rate 		Range
A. Overnight Segment (I+II+III+IV) 3,312.00 2.99 1.00-5.30
     I. Call Money 520.10 2.85 2.70-3.00
     II. Triparty Repo 2,270.90 2.95 1.00-3.60
     III. Market Repo 0.00   –
     IV. Repo in Corporate Bond 521.00 3.32 3.30-5.30
B. Term Segment      
     I. Notice Money** 8,293.58 3.20 1.95-3.40
     II. Term Money@@ 35.00 – 3.40-3.45
     III. Triparty Repo 3,10,508.65 3.01 2.60-3.40
     IV. Market Repo 98,506.72 3.09 0.50-3.25
     V. Repo in Corporate Bond 56.70 5.35 5.35-5.35
  Auction Date Tenor (Days) Maturity Date Amount Current Rate /
Cut off Rate
C. Liquidity Adjustment Facility (LAF) & Marginal Standing Facility (MSF)
I. Today’s Operations
1. Fixed Rate          
     (i) Repo          
    (ii) Reverse Repo Fri, 03/09/2021 3 Mon, 06/09/2021 6,83,539.00 3.35
    (iii) Special Reverse Repo~          
    (iv) Special Reverse Repoψ          
2. Variable Rate&          
  (I) Main Operation          
     (a) Reverse Repo          
  (II) Fine Tuning Operations          
     (a) Repo          
     (b) Reverse Repo          
3. MSF Fri, 03/09/2021 3 Mon, 06/09/2021 0.00 4.25
4. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs)£          
5. Net liquidity injected from today’s operations
[injection (+)/absorption (-)]*		       -6,83,539.00  
II. Outstanding Operations
1. Fixed Rate          
     (i) Repo          
    (ii) Reverse Repo          
    (iii) Special Reverse Repo~ Fri, 27/08/2021 13 Thu, 09/09/2021 6,574.00 3.75
    (iv) Special Reverse Repoψ Fri, 27/08/2021 13 Thu, 09/09/2021 611.00 3.75
2. Variable Rate&          
  (I) Main Operation          
     (a) Reverse Repo Fri, 27/08/2021 13 Thu, 09/09/2021 3,00,027.00 3.42
  (II) Fine Tuning Operations          
     (a) Repo          
     (b) Reverse Repo          
3. MSF          
4. Long-Term Repo Operations# Mon, 17/02/2020 1095 Thu, 16/02/2023 499.00 5.15
  Mon, 02/03/2020 1094 Wed, 01/03/2023 253.00 5.15
  Mon, 09/03/2020 1093 Tue, 07/03/2023 484.00 5.15
  Wed, 18/03/2020 1094 Fri, 17/03/2023 294.00 5.15
5. Targeted Long Term Repo Operations^ Fri, 27/03/2020 1092 Fri, 24/03/2023 12,236.00 4.40
  Fri, 03/04/2020 1095 Mon, 03/04/2023 16,925.00 4.40
  Thu, 09/04/2020 1093 Fri, 07/04/2023 18,042.00 4.40
  Fri, 17/04/2020 1091 Thu, 13/04/2023 20,399.00 4.40
6. Targeted Long Term Repo Operations 2.0^ Thu, 23/04/2020 1093 Fri, 21/04/2023 7,950.00 4.40
7. On Tap Targeted Long Term Repo Operations€ Mon, 22/03/2021 1095 Thu, 21/03/2024 5,000.00 4.00
  Mon, 14/06/2021 1096 Fri, 14/06/2024 320.00 4.00
  Mon, 30/08/2021 1095 Thu, 29/08/2024 50.00 4.00
8. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs)£ Mon, 17/05/2021 1095 Thu, 16/05/2024 400.00 4.00
  Tue, 15/06/2021 1095 Fri, 14/06/2024 490.00 4.00
  Thu, 15/07/2021 1093 Fri, 12/07/2024 750.00 4.00
  Tue, 17/08/2021 1095 Fri, 16/08/2024 250.00 4.00
D. Standing Liquidity Facility (SLF) Availed from RBI$       28,295.80  
E. Net liquidity injected from outstanding operations [injection (+)/absorption (-)]*     -1,94,574.20  
F. Net liquidity injected (outstanding including today’s operations) [injection (+)/absorption (-)]*     -8,78,113.20  
G. Cash Reserves Position of Scheduled Commercial Banks
     (i) Cash balances with RBI as on 03/09/2021 6,62,290.67  
     (ii) Average daily cash reserve requirement for the fortnight ending 10/09/2021 6,28,268.00  
H. Government of India Surplus Cash Balance Reckoned for Auction as on¥ 03/09/2021 0.00  
I. Net durable liquidity [surplus (+)/deficit (-)] as on 13/08/2021 11,32,933.00  
@ Based on Reserve Bank of India (RBI) / Clearing Corporation of India Limited (CCIL).
– Not Applicable / No Transaction.
** Relates to uncollateralized transactions of 2 to 14 days tenor.
@@ Relates to uncollateralized transactions of 15 days to one year tenor.
$ Includes refinance facilities extended by RBI.
& As per the Press Release No. 2019-2020/1900 dated February 06, 2020.
* Net liquidity is calculated as Repo+MSF+SLF-Reverse Repo.
# As per the Press Release No. 2020-2021/287 dated September 04, 2020.
^ As per the Press Release No. 2020-2021/605 dated November 06, 2020.
€ As per the Press Release No. 2020-2021/520 dated October 21, 2020, Press Release No. 2020-2021/763 dated December 11, 2020, Press Release No. 2020-2021/1057 dated February 05, 2021 and Press Release No. 2021-2022/695 dated August 13, 2021.
¥ As per the Press Release No. 2014-2015/1971 dated March 19, 2015.
£ As per the Press Release No. 2021-2022/181 dated May 07, 2021.
~ As per the Press Release No. 2021-2022/177 dated May 07, 2021.
ψ As per the Press Release No. 2021-2022/323 dated June 04, 2021.
Ajit Prasad
Director   
Press Release: 2021-2022/811

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Delay in legislation on crypto boosts lobbying, BFSI News, ET BFSI

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NEW DELHI: The delay in the government finalising the legislation on cryptocurrency has prompted intense lobbying, with agencies worried over the risks emanating from an unregulated segment with extreme price volatility, posing a threat to investors, many of whom do not understand the instrument.

Besides, there are concerns over the instrument being used for money laundering and terror funding, an issue that has been flagged by other agencies across the globe, sources told TOI.

While the Supreme Court had lifted the ban imposed by the RBI, the government had listed a bill on cryptocurrency to be introduced during the Budget session of Parliament but with the session cut short, the legislation could not make it.

During the monsoon session, the government remained silent on the future of the proposed bill with finance minister Nirmala Sitharaman recently saying that it has been sent for clearance by the Union Cabinet before it can be introduced in Parliament. The next session is at least two months away.

But crypto exchanges have used the interim period to launch a massive lobbying initiative with several governments and regulatory agencies, raising concerns. The exchanges have argued that a ban on digital currency transactions will result in job losses.

While there are fears that a ban will lead to investors getting locked into the instrument, sources indicated that a three-six month window will be provided for investors to exit.

Several officials have junked the argument that crypto currencies are an asset class. Besides, there are worries over the legal basis for the presence of some of the exchanges, which remain outside the jurisdiction of either Sebi or the RBI. “There has to be global coordination to combat the challenge posed by cryptocurrencies. They are not a currency as only the sovereign can issue currency. There is a grave danger in allowing these instruments,” said a source.



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Binance removes Singapore products on main platform after regulator’s warning, BFSI News, ET BFSI

Personal Finance

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HONG KONG: Binance, one of the world’s largest cryptocurrency exchanges, said it will restrict its services in Singapore days after the city state’s central bank said it should stop offering payment services.

Binance will stop offering Singapore dollar payment options and Singapore dollar trading pairs from Sep. 10 and remove the app from the Singapore iOs and Google Play stores, it said in a post on its website.

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4 Banking Stocks To Buy As Suggested By Broking Firm Sharekhan

Personal Finance

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Buy Axis Bank for a price target of Rs 940

Sharekhan has set a price target of Rs 940 on the stock of Asix Bank as the bank eyes a calibrated retail-led growth driven by low-cost deposits and a strong capital base.

“Axis Bank highlighted on its business strategy, in terms of growth and profitability. The bank wants to broaden its low-cost deposit franchise and thereby grow the deposit base in line with its loan book. Retail assets would remain a key growth driver. Moreover, it also plans to scale up and accelerate growth in the wholesale banking business. Its strategy going forward is to build a ‘digital bank’ and be a leader in the digital payments space,” the brokerage has said.

Axis Bank: Retail loans to drive growth

Axis Bank: Retail loans to drive growth

According to Sharekhan, the management indicated that it would focus on deposit-led loan growth, especially retail loans that form 54% of its total loan book. “Axis Bank’s loan book clocked a 13% CAGR during FY16-FY21. In Q1FY22, it expanded its loan book cautiously by 9.5% y-o-y. Of this, retail loans grew by 14% y-o-y and corporate loans also rose at 8% y-o-y in Q1. About 88% of its loan book is secured lending. Axis Bank’s emphasis continues to be on borrowers which have a relationship with the bank,” the brokerage has said.

Valuations of Axis Bank

Valuations of Axis Bank

According to Sharekhan, Axis Bank trades at 2.1x/1.8x/1.6x FY2022E/FY2023E/FY2024E ABVPS and we believe valuations are reasonable and there is potential for re-rating as earnings pick up and the economic scenario normalises.

“Conservative provisioning, strong capital base, overall franchise value and a high provision coverage ratio (PCR) are positives, which will help the bank ride over medium-term challenges and support growth and valuations. We maintain a Buy rating on the stock with a revised price target of Rs. 940,” the brokerage has said.

Preferred picks from the banking space: ICICI Bank, SBI and HDFC Bank

Preferred picks from the banking space: ICICI Bank, SBI and HDFC Bank

The brokerage has also highlighted other banks that are its preferred picks including, ICICI Bank, SBI and HDFC Bank, in its recent Q1FY2022 Results Review.

“Banks saw high slippages in Q1, especially in retail, agriculture or MSME due to the second wave of Covid-19. NII growth was weak and NIMs were under pressure due to sluggish disbursement and muted loan growth,” the brokerage has said.

“Second wave of covid-19 also impacted asset quality of NBFCs and led to loan degrowth. Performance of home finance remained resilient as Govt.’s efforts for affordable housing bode well for the sector,” the brokerage has said.

Disclaimer

Disclaimer

The article is informational in nature, which is taken from the brokerage report of Sharekhan. Please do consult a professional advisor vefore you invest in equities. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.



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SGX Nifty up 40 points; here’s what changed for market while you were sleeping, BFSI News, ET BFSI

Personal Finance

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Domestic stocks are likely to kick off the new week on a flat note amid a lack of directional cues from peer markets. Asian stocks were largely mixed on Monday morning, tracking a flat close for Wall Street on Friday. Oil was trading lower whereas the dollar was quoting near a month’s low. Here’s breaking down the pre-market actions:

STATE OF THE MARKETS

SGX Nifty signals a positive start
Nifty futures on Singapore Exchange traded 39 points, or 0.22 per cent, higher at 17,398.50, signaling that Dalal Street was headed for a positive start on Monday.

  • Tech View: Nifty50 on Friday index formed a bullish candle on the daily chart. Analysts said bulls have shown no sign of weakness and a higher targets of 17,500 and 17,700 are possible.
  • India VIX: The fear gauge gained over 2 per cent to 14.54 level on Friday over its close at 14.24 on Thursday.

Asian stocks mixed in early trade
Asian markets opened mixed on Monday with investor focus shifting to Japanese politics after Prime Minister Yoshihide Suga said he would not stand for re-election. MSCI’s broadest index of Asia-Pacific shares outside Japan was up by 0.11 per cent.

  • Japan’s Nikkei rallied 1.77%
  • Korea’s Kospi added 0.03%
  • Australia’s ASX 200 shed 0.62%
  • China’s Shanghai gained 0.34%
  • Hong Kong’s Hang Seng tanked 0.42%

US stocks closed mostly lower on Friday
The Nasdaq ended Friday at a new peak but the other main Wall Street indexes fell, reflecting the mixed sentiment stemming from a disappointing US jobs report which raised fears about the pace of economic recovery but weakened the argument for near-term tapering.

  • Dow Jones shed 0.21% to 35,369.09
  • S&P 500 retreated 0.03% to 4,535.43
  • Nasdaq added 0.21% to 15,363.52

Dollar trades near one-month low
The dollar languished near a one-month low against major peers on Monday, as investors pushed back expectations for when the Federal Reserve will begin tapering its massive stimulus.

  • Dollar index held at 92.155
  • Euro little changed at $1.18775
  • Pound gained to $1.3861
  • Yen moved to 109.79 per dollar
  • Yuan at 6.4587 against the greenback

Oil extends losses after Saudi price cut
Oil prices extended losses on Monday after the world’s top exporter Saudi Arabia slashed crude prices for Asia over the weekend, signalling that global markets are well supplied. Brent crude futures for November fell 57 cents, or 0.8 per cent, to $72.04 a barrel while US West Texas Intermediate crude for October was at $68.73 a barrel, down 56 cents, or 0.8 per cent.FPIs buy shares worth Rs 769 crore
Net-net, foreign portfolio investors (FPIs) bought Rs 768.58 crore worth of equities on Friday, taking their total August inflows to Rs 16,459 crore. DIIs bought Rs 668.60 crore worth equities on Friday, data suggests.

MONEY MARKETS
Rupee: The Indian rupee settled with a marginal gain of 4 paise at 73.02 against the US dollar on Friday, even as the domestic equities continued their record-setting spree.

10-year bond: India 10-year bond yield declined 0.24 per cent to 6.16 after trading in 6.15 – 6.19 range.

Call rates: The overnight call money rate weighted average stood at 3.16 per cent on Friday, according to RBI data. It moved in a range of 1.95-3.40 per cent.

DATA/EVENTS TO WATCH

  • GB BoE Saunders Speech (1 pm)
  • GB New Car Sales YoY AUG (1:30 pm)
  • GB Construction PMI AUG (2 pm)
  • AU ANZ Job Advertisements MoM AUG (7 am)
  • EA Construction PMI AUG (1 pm)

MACROS

Brookfield to sell toll road platform
Six years after setting up a platform for its toll road assets, Brookfield Asset Management is looking to cash out. The Canadian asset manager aims to sell Peak Infrastructure, valuing the vehicle at Rs 8,700 crore ($1.2 billion) inclusive of debt, to cash in on the prevailing valuation uptick of similar assets, said people aware of the development.

Delay in legislation on crypto boosts lobbying
The delay in the government finalising the legislation on cryptocurrency has prompted intense lobbying, with agencies worried over the risks emanating from an unregulated segment with extreme price volatility, posing a threat to investors, many of whom do not understand the instrument.

Textile exporters in a bind over Afghan crisis
Textile traders in Surat are worried over pending payments of about Rs 4,000 crore from Afghanistan which have got stuck with the Taliban taking control of the country. Afghanistan’s central bank has instructed the commercial banks not to allow corporate bank account holders to withdraw money for any purpose or to carry out any electronic transaction inside or outside of Afghanistan.

Emerging market currencies in a sweet spot
Central banks in developing nations will take center stage this week as assurances that the Federal Reserve is in no hurry to raise interest rates lay the groundwork for an extended rally in emerging market currencies.

Global banks want a bigger share of India’s ESG pie
Global banks are ramping up financing options for ESG (environmental, social and governance) compliant loans and bonds in India amid increasing environmental and social consciousness, a large pool of global funds waiting to invest in these securities and a big opportunity for such projects in the country.



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Finance Minister Nirmala Sitharaman lays foundation for Income Tax office building, BFSI News, ET BFSI

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Union Finance Minister Nirmala Sitharaman on Sunday laid the foundation for the office building of the Income Tax Department in Bengaluru, which officials said, would be one of its kind, oriented to harness maximum natural lighting and GRIHA rating IV compliant. The building has provision for solar panels for power generation and a Rain Water Harvesting system, they said.

Recycled water will be used for gardening and dual plumbing. The Central Air Cleaning system will be equipped with magnetic filter and UV-Ray Sterilization, officials said, adding the building will be constructed by the Bengaluru Project Circle of the Central Public Works Department.

The officials said the state-of-the art building will comprise an exclusive public relations office to address grievances on priority and a waiting lounge for tax payers.

It also houses Aaykar Seva Kendra for providing hassle free taxpayer services. This centrally located office building is taxpayer friendly. Design and space allocation of the building provides congenial working environment for officers and staff of Income Tax Department, they said.

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Benchmark G-Secs can edge up from the current level

Banking & Finance

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The benchmark government securities yield fell 10 basis points last week to close at 6.155 per cent on Friday and the momentum is expected to continue this week, according to bond traders who are waiting keenly for the consumer price index (CPI) inflation to be released mid-September.

The rally in the G-Secs market came on the back of a combination of factors like the US Fed Chair Jerome Powell’s dovish stance at the Jackson Hole Summit, high domestic liquidity and absence of key triggers in the market.

Period of apprehension

Bond traders, however, had a period of apprehension post the monetary policy announcement earlier this month.

Indications from the RBI that it is beginning to normalise its monetary policy by balancing liquidity at the shorter end through VRRR, along with one of the MPC members expressing reservation about the accomodative stance, made the market nervous. A primary dealer said there were concerns that more members would convert to hawks.

Fed stance soothes nerves

Bond yields continued to rise gradually and reached a peak of 6.255 per cent ahead of the Jackson Hole summit. However, Powell’s dovish stance calmed the nerves with the benchmark yield moving 10 basis points lower last week to close at 6.155 per cent.

Moreover, traders indicate that there was significant foreign portfolio investors’ (FPI) participation in the G-Secs market last week, especially in long tenor papers.

Vijay Sharma, Senior Executive Vice-President, PNB Gilts said the worst of the inflation seems to be over.

“The situation on the fiscal side is also not bad. It looks like the GST collections are also doing really well. These factors should augur well for bonds in the coming times unless we encounter some unexpected events. We can say that the level of 6.25 is now well protected. The momentum being very strong, the market can rally up to 6.1-6.12 per cent also unless some event pierces the rally,” Sharma said.

Siddharth Shah, head of treasury at STCI Primary Dealer said, at 6.25 per cent levels, the market found comfort in going long.

“Furthermore, the Fed Chair’s speech gave some amount of comfort. With the SDL supply seeing reduction, expectations of additional borrowing diminishing on account of upbeat GST collections, replacement demand for bonds on account of G-SAP amidst high market liquidity, conditions became ripe for a rally in bond yields. The benchmark yield is now close to 6.15 per cent and has the potential to go further down to 6.10-6.12 per cent,” Shah said.

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