Latest news with #FinancialStabilityReport
Indian Express
6 days ago
- Business
- Indian Express
How RBI helps maintain the resilience of Indian economy
— Kannan K The Reserve Bank of India's (RBI) financial inclusion index, which captures the extent of financial inclusion across the country, improved to 67 in March 2025 compared to 64.2 in the corresponding period the previous year. The central bank has said that growth was witnessed across all sub-indices – access, usage, and quality – in FY25. Recently, in its half-yearly Financial Stability Report (FSR), the RBI also noted that the Indian economy remains a key driver of global growth, underpinned by sound macroeconomic fundamentals and prudent macroeconomic policies. At the same time, it has proposed the creation of a Financial Conditions Index (FCI), which would enable real-time monitoring of the country's financial health. As the central bank, the RBI plays a vital role in regulating the country's economy and promoting financial literacy. Let's explore its formation, evolution, core responsibilities, and contemporary issues. The RBI was established on April 1, 1935 via the Reserve Bank of India Act, 1934 based on the recommendations of the Hilton Young Commission. The bank was constituted with primary objectives of regulating the issue of currency, maintaining reserves, and operating the credit and currency system of the country. As a colonial institution owned by private shareholders, the RBI was nationalised in 1949, and its objectives were realigned with India's developmental goals. Following economic liberalisation of the 1990s, the RBI's role evolved further and became more facilitative in nature. There was noted a shift from direct control of foreign exchange rates and credit to a broader focus on monetary policy and systemic regulation. The RBI is governed by a Central Board of Directors appointed by the Government of India. The board comprises official directors (the Governor and up to four Deputy Governors) and non-official directors, including nominees from various fields, government officials, and representatives from the four local boards. All members are appointed for a period of four years. The RBI operates through 30 specialised departments, such as the Department of Currency Management and the Department of Banking Regulation, and maintains its presence across the nation through its central office and 33 regional offices. In a key reform in 2016, the Monetary Policy Committee (MPC) – a six-member statutory body – was established to control the level of inflation in the economy. In doing so, it uses tools such as repo rate – the rate at which the RBI lends money to banks. Headed by the Governor of the RBI, the MPC is mandated to meet at least four times a year. The body takes decisions on the basis of majority vote. Last month, the MPC announced a significant cut in repo rate by 50 basis points (0.5 per cent) to 5.5 per cent and reduced the Cash Reserve Ratio (CRR) by 100 basis points to boost growth prospects. The RBI acts as banker to both the Government of India and state governments, managing their banking accounts and debt. It is also the banker of all scheduled banks, and manages their accounts as well as facilitates inter-bank transactions. In addition, the central bank acts as a 'lender of last resort' for commercial banks, meaning it provides financial support to commercial banks that are facing severe liquidity issues, and prevents systemic crises. It has an important developmental role through the promotion of financial inclusion and awareness, and ensuring credit flow to various sectors via priority sector lending requirements. In essence, the RBI steers the Indian economy, effectively balancing both stability and growth. It makes use of a range of tools to achieve the goals of its monetary policy. The most important among them are: — Repo Rate: The rate at which the RBI lends money to commercial banks. It is a benchmark rate, meaning it acts as a reference point for commercial banks to set the interest rates. A lower repo rate makes borrowing cheaper and encourages economic activity, while a higher repo rate discourages banks from lending and controls inflation. Fixing the repo rate is the core responsibility of the MPC. — Reverse Repo Rate: The interest rate the central bank pays commercial banks when they park their excess cash is called the reverse repo rate. — Cash Reserve Ratio (CRR): The percentage of a bank's total deposits that it is required to maintain in liquid cash with the RBI. The RBI determines the CRR percentage from time to time. — Statutory Liquidity Ratio (SLR): Percentage of a bank's deposits that it is required to maintain in the form of liquid assets like cash, gold, or approved securities. — Marginal Standing Facility (MSF) Rate: The rate at which banks can borrow money from the RBI on an overnight basis in an emergency situation due to the lack of interbank liquidity. — Open Market Operations (OMOs): The RBI buys and sells government securities in the open market for the injection or absorption of durable liquidity in the banking system. An increase in the repo rate, SLR, CRR, and MSF reduces the money supply in the economy, helping in inflation control but slowing down growth. On the other hand, reducing these rates injects liquidity into the economy, stimulating growth but potentially causing inflation. Calibrating these monetary tools to strike the right balance between price stability and sustainable growth is one of the core responsibilities of the RBI. Moreover, there are challenges faced by the country's central bank, notable among them are the digitalization of the economy, the emergence of new financial technologies (fintech), and the growing threat of cyberattacks. The pace of innovations in the financial sector, such as in areas like digital payments, requires the central bank to swiftly build and deploy advanced supervision and regulation technology (RegTech and SupTech). In addition, maintaining the resilience of the Indian economy to withstand shocks, both global and domestic, remains one of the key responsibilities of the RBI. Notably, the RBI is actively developing regulatory frameworks for emerging technologies to enhance supervisory oversight for managing cyber and even climate-related financial risks, and strengthen capital and liquidity requirements for reinforcing overall financial sector resilience. It has also introduced initiatives like the digital rupee as a Central Bank Digital Currency (CBDC) to keep pace with evolving financial trends. This proactive approach ensures the central bank remains at the forefront of safeguarding India's economic stability. (Kannan K is a Doctoral candidate at the Centre for Economic and Social Studies, Hyderabad) Share your thoughts and ideas on UPSC Special articles with Subscribe to our UPSC newsletter and stay updated with the news cues from the past week. Stay updated with the latest UPSC articles by joining our Telegram channel – IndianExpress UPSC Hub, and follow us on Instagram and X.
Economic Times
21-07-2025
- Business
- Economic Times
Corporate bonds in India: From institutional stronghold to broader participation
India's fixed-income landscape is undergoing a quiet yet powerful shift. While equity markets have long dominated headlines, a new narrative is emerging in the bond market in India, led by record-breaking corporate bond issuances, deeper institutional involvement, and a growing appetite for predictable, inflation-beating FY25, companies raised a record ₹9.9 lakh crore through corporate bonds, according to recent data released by the Reserve Bank of India (RBI). That's a 28% increase over the previous year. The rise in corporate bond issuance signals growing traction in India's corporate bond market. This also points to an uptick in private corporate capex. The increased corporate debt outlay is likely to power growth, spearheading India to the third-largest economy position by 2028. 1mg looks to become a digital health hub Even as issuance soars, one question remains: Are retail investors benefiting from this growth, or is their participation in the corporate bond market still lagging? A ₹53.6 lakh crore corporate bond opportunity untapped by retail India's overall bond market has now touched ₹226 lakh crore in size (around USD 2.6 trillion), as per RBI's June 2025 Financial Stability Report. Of this, corporate bonds in India account for over ₹53.6 lakh crore in outstanding stock. The rest includes government bonds, treasury bills, and state development loans in India. Yet, despite this expansion, the Indian bond market remains dominated byinstitutional investors. Mutual funds, insurers, banks, and pension funds still hold 96% of outstanding corporate bonds, according to market estimates. Retail participation rate, by contrast, remains in the low single digits—a glaring gap compared to their enthusiasm for equities and gold. Why retail investors hesitated — and why that may be changing Retail investor caution wasn't entirely unfounded. Until recently, many top-rated bonds had minimum investment sizes of ₹1 lakh or more. This ruled out many retail investors. The Securities and Exchange Board of India (SEBI) reduced the minimum ticket size to ₹10,000; these changes have improved the accessibility of the bond market. Liquidity is the second pain point, as the secondary corporate bond market remains uneven, with only 3.8% of the total outstanding stock traded monthly. This lack of depth made it harder for individuals to exit their positions before maturity. This concern is especially relevant for those accustomed to the liquidity of stocks or mutual funds. But the winds are shifting. The minimum investment size has come down sharply. The bond market's liquidity is gradually improving, thanks to stronger regulations, better transparency, and greater accessibility and visibility. Online bond platforms such as Jiraaf are also making it easier for retail investors to participate. The macroeconomic environment is shifting. Interest rates are now easing, with the RBI cutting the repo rate by 100 basis points in 2025. Inflation is gradually cooling. This is prompting more investors to turn to fixed income securities to lock in higher yields. Currently, AAA-rated corporate bonds yield 30-50 basis points more than comparable fixed deposits, while AA-rated corporate bonds offer 50-200 basis points higher returns with a similar level of risk to fixed deposits. The return profile shifts dramatically in favour of investors when A and BBB-rated bonds come into play. These bonds offer 200 to 500 basis points more than fixed deposits with a very balanced risk profile. While some argue that A- and BBB-rated bonds pose a higher risk and thus offer a higher return, the data paints a different picture. The default ratio of investment-grade bonds, which encompasses the AAA to BBB segment, remains low. According to CRISIL, a credit rating agency, BBB-rated bonds witha three-year tenure havethe highest default rate among investment-grade bonds, at just 2.21%. The lower default rates speak to the safety of corporate bonds as an investment alternative to riskier and more volatile asset classes, such as equities, gold, and real estate. The attached CRISIL data gives a detailed breakdown of the default rates for various credit ratings. India's fixed-income market is also undergoing a technological revolution. Platforms such as the SEBI-regulated OBPP player Jiraaf are making corporate bond investments more accessible than ever. With entry points as low as ₹1,000, even everyday investors can now build fixed-income portfolios that were once the domain of institutions. What is driving the corporate bond market depth Indian corporate balance sheets are at their healthiest, which is giving Indian Inc considerable headroom to borrow. Corporate bonds offer companies more control than bank loans. Strong financials are also allowing firms to raise capital without diluting its stake in the company. Additionally, interest rates are reducing. This has prompted corporates to turn to the bond market to fund expansion while retaining tenure, rates, and repayment cycles. This ease of access is deepening the bond market from the issuer's point of view in FY26. On the other hand, strong demand from foreign portfolio investors (FPIs), as well as institutional and retail demand is driving the supply-side uptick. The FPIs are attracted to the higher returns provided by corporate bonds as G-sec yields decline. Institutional demand is robust, as debt becomes a more attractive asset in the light of equity market volatility. This is also evident in the increasing cash inflow into debt mutual funds over the past months. Equity investments had been the darling of investors for the past decade, with most experts and amateur investors vouching for the growth aspect of the asset class. However, despite market uproar around high returns, the average Nifty50 return over the past decade is 12%. A 12% equity growth barely beats the returns offered by corporate bonds, while posing a much higher risk and volatility. Investors are realising the stability that corporate bonds provide. They are gradually shifting their preference to bonds, focusing on building a well-diversified bond portfolio that includes bonds from different issuers, ratings, and tenures. Investment platforms, such as Jiraaf, are helping investors access the Indian corporate bond market by offering curated bonds with transparent credit scoring, making corporate bonds more accessible to non-institutional investors. In addition to providing curated deals, Jiraaf is also developing tools that simplify bond analysis and make it accessible to all. The first of its kind Bond Analyzer brings analysis to the fixed-income realm, which was previously limited to equities. Looking ahead Despite its growing size and importance, the Indian bond market still lags behind its global peers in terms of retail penetration. The direction is promising. As awareness grows, tools become easier to use, and yields remain attractive, there's reason to believe that 2025 could mark an inflection point for retail entry into corporate debt. For investors seeking to balance risk and return amid equity market volatility, corporate bond investment offers a compelling middle path, blending capital preservation with growth. Disclaimer: The views and opinions expressed in the story are independent professional judgment of the experts and we do not take any responsibility for the accuracy of their views. The brand is solely liable for the correctness, reliability of the content and/or compliance of applicable laws. The above is non-editorial content and TIL does not guarantee, vouch or endorse any of it. Please take all steps necessary to ascertain that any information and content provided is correct, updated, and verified. (You can now subscribe to our ETMarkets WhatsApp channel) (This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@
Time of India
21-07-2025
- Business
- Time of India
Corporate bonds in India: From institutional stronghold to broader participation
India's fixed-income landscape is undergoing a quiet yet powerful shift. While equity markets have long dominated headlines, a new narrative is emerging in the bond market in India, led by record-breaking corporate bond issuances , deeper institutional involvement, and a growing appetite for predictable, inflation-beating returns. In FY25, companies raised a record ₹9.9 lakh crore through corporate bonds, according to recent data released by the Reserve Bank of India (RBI). That's a 28% increase over the previous year. The rise in corporate bond issuance signals growing traction in India's corporate bond market. This also points to an uptick in private corporate capex. The increased corporate debt outlay is likely to power growth, spearheading India to the third-largest economy position by 2028. Even as issuance soars, one question remains: Are retail investors benefiting from this growth, or is their participation in the corporate bond market still lagging? Bonds Corner Powered By Corporate bonds in India: From institutional stronghold to broader participation India's corporate bond market sees record growth in FY25. Issuance rises by 28%, signaling increased corporate capex. The overall bond market touches ₹226 lakh crore. Retail participation remains low, but accessibility improves with smaller investment sizes. Interest rates ease, making bonds attractive. Platforms like Jiraaf simplify bond investments. Corporate bonds offer a balanced risk-return profile. India bonds advance as traders build positions for another rate cut Rupee to track dollar recovery, bond market focused on rate cut bets IndusInd Bank to consider raising funds via long-term bonds India bonds flat, traders eye debt supply for cues Browse all Bonds News with A ₹53.6 lakh crore corporate bond opportunity untapped by retail India's overall bond market has now touched ₹226 lakh crore in size (around USD 2.6 trillion), as per RBI's June 2025 Financial Stability Report. Of this, corporate bonds in India account for over ₹53.6 lakh crore in outstanding stock. The rest includes government bonds, treasury bills, and state development loans in India. Yet, despite this expansion, the Indian bond market remains dominated byinstitutional investors. Mutual funds, insurers, banks, and pension funds still hold 96% of outstanding corporate bonds, according to market estimates. Retail participation rate, by contrast, remains in the low single digits—a glaring gap compared to their enthusiasm for equities and gold. Why retail investors hesitated — and why that may be changing Retail investor caution wasn't entirely unfounded. Until recently, many top-rated bonds had minimum investment sizes of ₹1 lakh or more. This ruled out many retail investors. The Securities and Exchange Board of India (SEBI) reduced the minimum ticket size to ₹10,000; these changes have improved the accessibility of the bond market . Liquidity is the second pain point, as the secondary corporate bond market remains uneven, with only 3.8% of the total outstanding stock traded monthly. This lack of depth made it harder for individuals to exit their positions before maturity. This concern is especially relevant for those accustomed to the liquidity of stocks or mutual funds. But the winds are shifting. The minimum investment size has come down sharply. The bond market's liquidity is gradually improving, thanks to stronger regulations, better transparency, and greater accessibility and visibility. Online bond platforms such as Jiraaf are also making it easier for retail investors to participate. The macroeconomic environment is shifting. Interest rates are now easing, with the RBI cutting the repo rate by 100 basis points in 2025. Inflation is gradually cooling. This is prompting more investors to turn to fixed income securities to lock in higher yields. Currently, AAA-rated corporate bonds yield 30-50 basis points more than comparable fixed deposits, while AA-rated corporate bonds offer 50-200 basis points higher returns with a similar level of risk to fixed deposits. The return profile shifts dramatically in favour of investors when A and BBB-rated bonds come into play. These bonds offer 200 to 500 basis points more than fixed deposits with a very balanced risk profile. While some argue that A- and BBB-rated bonds pose a higher risk and thus offer a higher return, the data paints a different picture. The default ratio of investment-grade bonds , which encompasses the AAA to BBB segment, remains low. According to CRISIL, a credit rating agency, BBB-rated bonds witha three-year tenure havethe highest default rate among investment-grade bonds, at just 2.21%. The lower default rates speak to the safety of corporate bonds as an investment alternative to riskier and more volatile asset classes, such as equities, gold, and real estate. The attached CRISIL data gives a detailed breakdown of the default rates for various credit ratings. ET Spotlight India's fixed-income market is also undergoing a technological revolution. Platforms such as the SEBI-regulated OBPP player Jiraaf are making corporate bond investments more accessible than ever. With entry points as low as ₹1,000, even everyday investors can now build fixed-income portfolios that were once the domain of institutions. What is driving the corporate bond market depth Indian corporate balance sheets are at their healthiest, which is giving Indian Inc considerable headroom to borrow. Corporate bonds offer companies more control than bank loans. Strong financials are also allowing firms to raise capital without diluting its stake in the company. Additionally, interest rates are reducing. This has prompted corporates to turn to the bond market to fund expansion while retaining tenure, rates, and repayment cycles. This ease of access is deepening the bond market from the issuer's point of view in FY26. On the other hand, strong demand from foreign portfolio investors (FPIs), as well as institutional and retail demand is driving the supply-side uptick. The FPIs are attracted to the higher returns provided by corporate bonds as G-sec yields decline. Institutional demand is robust, as debt becomes a more attractive asset in the light of equity market volatility. This is also evident in the increasing cash inflow into debt mutual funds over the past months. Equity investments had been the darling of investors for the past decade, with most experts and amateur investors vouching for the growth aspect of the asset class. However, despite market uproar around high returns, the average Nifty50 return over the past decade is 12%. A 12% equity growth barely beats the returns offered by corporate bonds, while posing a much higher risk and volatility. Investors are realising the stability that corporate bonds provide. They are gradually shifting their preference to bonds, focusing on building a well-diversified bond portfolio that includes bonds from different issuers, ratings, and tenures. Investment platforms, such as Jiraaf, are helping investors access the Indian corporate bond market by offering curated bonds with transparent credit scoring, making corporate bonds more accessible to non-institutional investors. In addition to providing curated deals, Jiraaf is also developing tools that simplify bond analysis and make it accessible to all. The first of its kind Bond Analyzer brings analysis to the fixed-income realm, which was previously limited to equities. Looking ahead Despite its growing size and importance, the Indian bond market still lags behind its global peers in terms of retail penetration. The direction is promising. As awareness grows, tools become easier to use, and yields remain attractive, there's reason to believe that 2025 could mark an inflection point for retail entry into corporate debt . For investors seeking to balance risk and return amid equity market volatility, corporate bond investment offers a compelling middle path, blending capital preservation with growth. The views and opinions expressed in the story are independent professional judgment of the experts and we do not take any responsibility for the accuracy of their views. The brand is solely liable for the correctness, reliability of the content and/or compliance of applicable laws. The above is non-editorial content and TIL does not guarantee, vouch or endorse any of it. Please take all steps necessary to ascertain that any information and content provided is correct, updated, and verified.
Scoop
14-07-2025
- Business
- Scoop
RBNZ Explores The Impact Of An Ageing Population On The Financial System
New Zealand faces an economic shift as the population ages, according to the Reserve Bank of New Zealand in a Financial Stability Report special topic article released today. While the economic impact will unfold slowly, the Reserve Bank is urging financial institutions to understand and be prepared for the structural changes and potential risks associated with this long-term change, Director of Financial System Assessment Kerry Watt says. 'An ageing population is likely to influence savings, borrowing and investment behaviour. This in turn will affect interest rates, asset prices and the demand for financial products. The overall impacts may be complex and vary over time.' As the population ages, overall savings are expected to rise in the near term before declining. People typically borrow when young, save during their working years, and draw down those savings in retirement. Increased saving could put downward pressure on interest rates and lift the value of assets like housing and equity. Demand for housing loans may decline as the population ages. Older investors may favour lower risk assets. For banks, increased deposit funding and reduced demand for mortgages may encourage a shift towards other types of lending and expansion in the provision of other services. For the insurance sector, demand for health insurance is expected to grow, while demand for life insurance may decline. Demographic change and changes in the levels of savings and borrowing may also affect how monetary policy flows through the economy. In addition, increased expenditure on healthcare and superannuation will impact fiscal policy. 'Understanding and adapting to these changes will be key to maintaining financial system resilience,' Mr Watt says.
Economic Times
12-07-2025
- Business
- Economic Times
Public sector banks surge to 43% market share in home loans, overtaking private lenders
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Public sector banks have emerged as the largest financiers of new mortgages over the past four years, drastically altering the market dynamics in the home-loan segment and forcing a reshuffle of the industry leader-board earlier tilted toward private the past four years, governmentowned banks have steadily accelerated market share, data published by credit bureau CRIF Highmark showed. For PSBs, the share of new home loans by value rose to 43% in FY25 from 34% in FY22. Analysts attribute the expansion in the share of business for public-sector lenders to competitive rates and government initiatives to boost home per the June 2025 Financial Stability Report (FSR) of the central bank, in FY25 the overall credit growth of PSU banks outpaced that of private banks after more than a decade, with home loans being among the primary growth drivers in the retail loans pioneer Housing Development Finance Corp (HDFC), merged two summers ago into the bank it spawned and gave its name, had begun India's financed home-ownership culture in the 1970s, and had a dominant share for decades in the mortgage business, where mainstream lenders were relatively late led largely by private lenders, started pushing for home loans only in the new millennium, as services-sector pay packets surged through the first decade of liberalization and fresh housing starts in India's big cities became a keenly tracked metric for both financiers and dependent industries, such as cement, steel, hardware and the data also showed that private banks' share fell to 29.8% from 42.6% in the period under consideration.
