Webinar :Register now for webinar on 'Trade BankNifty in just 15 minutes a day' - By Asmita Patel
you are here: HomeNewsBusiness
Last Updated : Oct 28, 2020 05:27 PM IST | Source: PTI

Financial conditions recover significantly after hitting the abyss in April: CRISIL

CRISIL said the central bank’s measures have helped mitigate the large and broad-based economic damage caused by the pandemic. However, it made it clear that pockets of stress still remain, pointing to the weak bank credit growth, wider spreads on lower-rated corporate bonds, and fundamental pressures due to high government borrowing.

PTI
Representative Image
Representative Image

Financial conditions in India have witnessed a speedy recovery from the COVID-19 pandemic-led harrowing abyss courtesy the Reserve Bank’s interventions, domestic credit rating agency CRISIL said on Wednesday.

While easy global monetary policies have helped, the RBI’s accommodative stance has contained short-run pressures no less, the agency said, citing its newly-launched monthly Financial Conditions Index (FCI).

Financial conditions in India have staged a full-throttle recovery from the harrowing abyss they had been sent flailing into by the COVID-19 pandemic in April, it stated.

Close

It said the central bank’s measures have helped mitigate the large and broad-based economic damage caused by the pandemic.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

However, it made it clear that pockets of stress still remain, pointing to the weak bank credit growth, wider spreads on lower-rated corporate bonds, and fundamental pressures due to high government borrowing.

The agency has used 15 conditions for constructing the FCI, which includes monetary policy conditions, money market, equity markets, external finance conditions, bank lending conditions and money supply in the economy.

It said the FCI is designed to give a comprehensive measure of financial conditions for the Indian economy by capturing price and supply variables across financial markets, along with prevailing risk sentiments.

Not only does it capture the extent of monetary policy transmission across various financial market segments, but also evaluates the policy stance itself in the context of prevailing inflation conditions, it said.

The financial conditions had been tightening since the IL&FS default in 2018, leading the FCI to turn negative, it said, adding that the COVID-19 pandemic only magnified the same to make it tightest in a decade in April 2020.

The FCI value was far below one standard deviation from the long-term average, implying significant tightening, it said.

The only time when FCI dipped to a similar level earlier was in 2013, during the Fed taper tantrum.

However, the FCI has been improving since then and turned positive in July.

Currently the financial conditions are easiest in two years, it stated.

It said RBI’s sharp rate cuts and unconventional measures have helped ease financial conditions.

The multitude of steps taken by the RBI, coupled with global easing have helped ease the financial conditions in India visibly since April, though weak bank credit growth, wider spreads of lower-rated corporate bonds, and fundamental pressure imposed by high government borrowing indicate that some stress persists, it said.

While the central bank’s accommodative stance should help in the short-run, it remains to be seen until when and to what extent these pressures will be masked, it added.
First Published on Oct 28, 2020 05:27 pm
Sections