Tag: borrowing

G-secs react to the beginning of Fed taper

Banking & Finance

[ad_1]

Read More/Less


Three things happened last week that made happy bond traders trim their long positions, at least, to a certain extent ahead of the second half borrowing calendar set to be released this week.

US treasury yields shot up after the Federal Reserve stated it could cut back on its bond purchases beginning November and conclude the process by the middle of 2022. The 10-year treasury yield climbed to 1.45 per cent on Friday from 1.37 per cent, the week before. The proximity of the taper process and the expectation of US Fed Funds rate to be increased by the end of 2022, brought forth risk-off trades in bond markets. The G-sec yields too rose from 6.14 to 6.19 per cent after the FOMC meeting. As one bond trader described, “When the US sneezes, the rest of the world catches a cold.”

And as if that wasn’t enough, crude prices continued to rise for the third straight week and hit close to three-year highs over global output disruptions, tightening inventories and persisting demand.

Key events back home

Higher crude prices tend to negatively impact bond prices due to the impact they have on fuel inflation and monetary policy decisions. On the domestic front, the Reserve Bank of India did come out with the much awaited G-SAP auction. The Central bank announced a simultaneous purchase and sale of securities which means the net liquidity injection into the market was nil. The Central bank conducted purchases of long tenor bonds maturing in 2028, 2031, and 2035, cumulatively amounting to ₹15,000 crore while selling short-tenor bonds maturing in 2022, also amounting to ₹15,000 crore. Next week too, the RBI will be conducting a similar operation of simultaneous purchase and sale of long and short tenor bonds, respectively. Bond market participants say that although it was a minor dampener, they have come to terms with the fact that the RBI may not be too comfortable with the high amount of liquidity prevailing in the market.

The benchmark yield hit 6.19 per cent last week having risen from the lows of 6.12 per cent seen the week before.

Going forward, the second half borrowing calendar and the monetary policy outcome in early October will be key events. In case the second half borrowing figure comes below ₹5-lakh crore, the benchmark yield could retest the 6.1 per cent level. However, if the borrowing figure is higher than ₹5.5-lakh crore, the 10-year yield could breach the 6.23 per cent level, traders say.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , ,

4 mantras to help you borrow wisely

Personal Finance

[ad_1]

Read More/Less


There’s plenty of personal finance advice on saving and investing wisely. But for most young folks, borrowing to fund their lifestyle often precedes investing.

Biting off more loans than you can chew early in life can put a spoke in your wealth creation plans even before you get started. With many lenders jostling for the retail loan pie, loan products today come in slick disguises too. So here are some tips to avoid the pitfalls and borrow wisely.

Borrowing for a good purpose

Any kind of borrowing entails taking on future hardship in the form of loan obligations to gratify an immediate need. But getting into the habit of instant gratification for all your needs, wants and luxuries locks up your future incomes in EMIs and robs you of the flexibility to make career or life decisions.

This makes it important for you to put some thought into the kind of spending for which you will borrow. To ensure that loans don’t deplete your wealth, distinguish between appreciating assets and depreciating ones.

When you borrow to invest in an appreciating asset such as land, a home, or an educational degree, returns you earn in the long run can compensate, at least partly, for the interest costs you incur.

But if you borrow to fund depreciating assets, you face the double whammy of interest costs on top of eroding asset value. Folks who take loans to replace their smartphone every year would know the pain of paying EMIs, long after an item has outlived its usefulness.

Don’t step-up EMIs

When assessing if they can afford a new car, consumer appliance, or home loan, most folks look at only the EMI or equated monthly installment. Knowing this, lenders obligingly structure their EMIs ‘flexibly’ as step-up or balloon EMIs, so that the initial EMIs are small, but expand as time goes by.

But this gimmick hurts more than helps you as a borrower. Lower EMIs at the beginning of your loan term merely postpone your repayment and help the lender load extract additional interest, adding to your total outgo.

Take the case of a ₹10 lakh car loan for 5 years, at a fixed rate of 7.5 per cent. The EMI based on the old-fashioned fixed calculation would be ₹20,038 per month. This essentially means a total outgo of ₹12.02 lakh including interest on the ₹10 lakh loan at the end of 5 years.

Should you opt for a step-up EMI, where you pay ₹8,990 for the first six months and ₹22,240 for the next 54 months, you end up shelling out ₹12.55 lakh for the same term. In a balloon repayment scheme, which stretches your loan tenure to 7 years, you start with an EMI of ₹11,110 in the first year, going up to ₹12,220 in the second year, and so on until your EMI hits ₹99,990 in the last month. In this case, you’d end up shelling out ₹14.12 lakh to the lender. That’s 17 per cent more than the simple EMI.

Shop around for better rates

When it comes to investment products, most folks are constantly on the hunt for better rates. But with loans, they carry a misplaced sense of loyalty to their lender and pay EMIs like clockwork.

Worries about processing charges and paperwork are also deterrents to making any switch.

However, Indian lenders are no longer allowed to charge prepayment penalty on floating rate loans.

Most lenders are quite willing to offer attractive deals with minimal paperwork to customers jumping ship from their competitors because they like to add new clients with a readymade repayment record.

Your existing lender may take his own sweet time to reset your interest rate when market interest rates are falling.

But most lenders are quite willing to offer much lower rates to their brand-new customers. This makes transferring your home loan balance to a new lender the best way to expedite rate resets.

Given the size and tenor of home loans, a simple switch from one lender to another can make quite a difference to your wealth in the long run. Switching a ₹30 lakh home loan with a remaining tenure of 15 years, from a bank charging 8 per cent interest to one charging 6.75 per cent, can reduce your EMI outgo from ₹28,670 a month to ₹26,547 and your total loan repayment from ₹51.6 lakh to ₹47.7 lakh.

Prepay at every opportunity

Loans, as we explained earlier, can rob you not just of the ability to spend, but also of career and financial flexibility. This makes it important for you to pay down your loan whenever you accumulate a reasonable lump sum.

If you’ve built up significant sums in your bank deposits from salary cheques, bonus from your employer, or a windfall from the stock market, use that to prepay your loans as soon as you can.

While prepaying, prioritize high-rate loans and keep tax benefits in mind. But ultimately, if you have sufficient sums saved up to prepay your home loan, don’t let tax considerations nudge you into continuing with EMIs.

The tax saving on a home loan repayment only lets you save on your interest costs and doesn’t really bolster your income or wealth.

This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

Govt to borrow 47% less in Q2

Banking & Finance

[ad_1]

Read More/Less


The Government will be borrowing about 47 per cent less at ₹2.21 lakh crore in the second quarter of FY22 against ₹4.68 lakh crore in the first quarter via weekly Treasury Bill auctions.

The central bank, in a statement, said: “After reviewing the cash position of the Central Government, Government of India, in consultation with the Reserve Bank of India, has decided to notify the amounts for the issuance of Treasury Bills for the quarter ending September 2021.”

As per the calendar, the Government will be borrowing about 53 per cent of the total amount via 91-days T-Bill auctions; 24 per cent via 182-days T-Bills and 23 per cent via 364-days T-Bills.

Market experts say since more than 50 per cent of the total Government borrowing in Q2 is via 91-days T-Bills, RBI probably wants the yields at the short-end to go up.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

India Inc’s overseas borrowing touches $9.23 billion, a two year high in March

Banking & Finance

[ad_1]

Read More/Less


External commercial borrowings (ECBs) of Indian corporates have hit a two-year high of $9.23 billion in March 2021. Prior to this, the overseas borrowing of India Inc touched a monthly high of $12.18 billion in March 2019.

The spike in overseas borrowing comes after months of lacklustre demand for external debt due to surplus liquidity in the domestic market, muted credit demand and absence of major expansion plans by Indian corporates since the onset of the pandemic.

After hitting an historic high of $52 billion in FY20, overseas borrowing of India Inc fell sharply since the beginning of FY21. Overseas debt of Indian companies fell to $3.51 billion in the first quarter of FY21 after recording a high of $19 billion in the previous quarter. However, with multiple phases of unlocking and rebound in economic activity, the external fund-raising picked up momentum to reach $9 billion in the second quarter, $7 billion in third and $16 billion in the last quarter of the previous fiscal.

“The lower borrowings from the overseas markets in the current financial year can in large part be attributed to the pandemic-led economic and business disruptions that have made corporates reluctant to borrow and add to their liabilities amid uncertainties about the future business and economic conditions,” CARE Ratings said in its Debt Market Review for February 2021.

Sudden spike

The sudden spike in ECBs in March 2021 can largely be attributed to Indian Railway Finance Corporation (IRFC) which alone raised $4.92 billion under RBI’s approval route for the purpose of ‘Infrastructure development’.

“I would not immediately connect the increase in overseas borrowing directly with economic revival. Increase in overseas borrowing could be for a variety of factors such as lower cost of funds, greater liquidity in the international market, negative interest rates in many jurisdictions,” said Adity Chaudhury, Partner, Argus Partners.

She, added that India Inc’s latest results show a healthy recovery post the first wave of Covid-19 and point towards an economic revival but growth in overseas funding will depend on a variety of factors pointed above.

For the full year, India Inc’s overseas borrowing stood at $35.06 billion in FY21, lower than $52 billion fund raise in FY20 and $41 billion in FY19.

Top borrowers

Reliance Industries topped that list of overseas borrowers in FY21 raising a little over $7 billion or 20 per cent of the total ECB fund raise of India Inc followed by IRFC ($4.08 billion), REC Limited ($1.95 billion), Adani Ports ($1.75 billion) and ONGC Videsh Rovuma ($1.60 billion).

On a sectoral basis, the financial services sector continues to be the major borrower of overseas debt with a total fundraising of about $10 billion, followed by Coke and refined petroleum manufacturers ($8 billion) and Electricity, gas, steam and air conditioning supply ($3 billion).

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

A ‘Shakthi’ dose from the RBI

Banking & Finance

[ad_1]

Read More/Less


 

Finance Ministers generally look for endorsement of their Budget exertions from two entities — the stock market and the central bank. The first comes right away, practically simultaneously, alongside the Budget. The second, from the central bank, comes in its monetary policy announcement immediately following the Budget.

Various stakeholders draw their cues from the signals that come from these two informed assessments. While market reactions are easily gauged by index and individual stock movements, the central bank’s statement and the Governor’s comments are carefully parsed. They are read to detect if the central bank is fully on board with the government plans or whether there are any reservations. Of course, even when there are misgivings, they are always couched in mild and respectful language.

The Finance Minister’s Budget has got the unequivocal thumbs up from both this time. The market was up by a whopping 5 per cent in a single day — impressed apparently by the focus on growth, infrastructure spending, privatisation plans and the attempt at transparency on the fiscal deficit numbers.

Today, the RBI monetary policy committee has provided its own support. It has left the key repo rate unchanged at 4 per cent. The RBI has already cut this rate by 250 basis points over the past two years, with about 115 bps of this coming in the past year in response to the pandemic. The policy guidance is in line with its stance of remaining ‘accommodative’ as long as necessary. Inflation numbers as evidenced by the movement in consumer price index (CPI) are relatively mild and within the comfort zone for the central bank. The projected CPI for the first half of the next year also reflects an easing to a range of 5 per cent and moving further down to 4.3 per cent in the third quarter.

Facilitating massive borrowing

The key question in this policy was what the RBI would say about the government borrowing programme. The government is set to borrow about ₹12 lakh crore or about ₹25,000 crore every week in the next year. The RBI has provided an assurance that it will manage it in a non disruptive manner. This was par for the course.

And then the RBI pulled out a rabbit from its hat by announcing direct retail participation in government bonds buying through the RBI. This is no doubt a very important step — and at least in theory, helps diversify the lender base for the government. In the long run, this may help provide more stable interest rates for both the government and the entire economy. This is also a good option for high networth individuals who may be uneasy with the vertiginous climb of the stock market indices currently.

However, it bears remembering (even as one receives the news with optimism) that past experience with regard to fostering retail participation through various other agencies have been lukewarm. Also, these measures, welcome as they are, will take time to fructify. It may be a bit too much to expect that retail investors are going to queue up and jostle outside RBI doors to buy government bonds this year (like they did to return old currency notes four years ago !)

The economy is set to begin recovering from the troughs of the past two years. As the Governor put it succinctly in his concluding remarks, the only way for the economy to go now is — up. How the RBI handles the massive borrowing programme as well as rising corporate demand for credit — without letting interest rates get out of hand — is going to be it’s biggest challenge in the year ahead. The bond markets remain sceptical if the initial movements are any indication.

(The writer is a Mumbai-based freelance journalist)

[ad_2]

CLICK HERE TO APPLY

One comment , , , , , ,