Summary

Declining yields in the primary and secondary markets and lower borrowings characterized the Indian debt markets in October’20. Although fund raising by the government (centre and states) in October 2020 was markedly higher on a year-on-year basis, it was lower than that in the previous month. Borrowings by corporates from the debt capital markets were lower on a monthly as well as yearly basis and was limited to the higher credit rated entities. Similarly, bank credit growth continued to be tepid.

However, bank credit offtake in October 2020 witnessed an improvement on a sequential basis. The sluggish borrowings by corporates indicated lower funding requirements despite easing of the lockdown restrictions across the country.

The cost of funds moderated for the government and corporates alike in October 2020, reversing the rise seen in the previous month. This easing can be attributed to the RBI’s measures in its latest monetary policy to boost demand for government securities and liquidity infusion in the banking system. This helped bring down yields in the secondary market across segments of the debt markets. The risk perception of corporate bonds also improved during the month as highlighted by the narrowing of spreads with GSecs.