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Last Updated : Nov 05, 2019 07:22 PM IST | Source: PTI

FPIs turn constructive towards INR paper

The Reserve Bank of India's active presence in the forex (FX) markets has added to the surfeit, as also evident in the sharp jump in the FX reserves to a record high ($442.6 billion), observed DBS.

Foreign Portfolio Investors (FPIs) have turned constructive towards the INR paper, remaining net buyers this month after $520 million purchases in October, according to Singapore's DBS Bank on November 5.

Banking system liquidity has turned a strong surplus, drawing the central bank's hand, it noted.

The Reserve Bank of India's active presence in the forex (FX) markets has added to the surfeit, as also evident in the sharp jump in the FX reserves to a record high ($442.6 billion), observed DBS.

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As a counter, the RBI announced measures to mop liquidity through variable reverse repo auctions – Rs 250 billion of 42-day on November 4 (Monday), Rs 250bn on Friday alongside CMBs (cash management bills).

These are directed at absorbing part of longer duration but by no means signal a shift in the liquidity stance in force since June, according to DBS interpretation of the market.

Despite the liquidity panel proposing a small deficit balance, the RBI has maintained conducive liquidity conditions to facilitate transmission.

Entering the seasonally unfavourable 2HFY, any liquidity deficits are likely to be met by support via repos, OMOs to keep yields stable, it said.

In an overnight move, the RBI tightened liquidity norms for NBFCs to improve their asset liability management framework and help early detection of any funds' squeeze.

This will apply to non-banks with asset size of INR1 billion and above, systemically important core investment companies and all deposit-taking NBFCs irrespective of their asset size.

These measures are intended to place a cap on the negative ALM mismatches over specific liquidity buckets, while also necessitating the need for liquidity coverage ratios (LCRs), latter to be binding from Dec 2020, believes DBS.

These moves will help NBFCs to be resilient against liquidity shortfalls under stress episodes lasting for at least around a month, it added.

Tighter funding conditions faced by NBFCs has seen them rely increasingly on banks, debt markets and offshore borrowings, as domestic players grow warier and borrowing costs for the stressed names remain high, it said.

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First Published on Nov 5, 2019 07:21 pm
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