caused bond yields to fall sharply in the secondary market, but it was largely reflected in the better-rated bonds as the secondary market for lower-rated firms are virtually non-existent. Yields on HDFC’s bonds maturing in March 2022 fell from 8.25 per cent to 6.60 per cent, while Reliance Industries’ August 2022 bond yield fell from 8.55 per cent to 7.25 per cent. LIC Housing Finance’s August 2022 bonds were dealt at 8.70 per cent on Thursday. That fell to 7.20 per cent on Friday after the RBI’s announcement.
The RBI’s TLTROs will “decongest credit channels and lower the cost of credit, providing much needed relief” to companies, said Zarin Daruwala, CEO of Standard Chartered Bank, India.
According to Badrish Kulhalli, head of fixed income at HDFC Life Insurance, the RBI’s move will reduce the stress seen in the corporate bond market.
“The number of participants had dwindled as there was increasing doubts on availability of funding during the lockdown period, especially over the year end. This step from the RBI addresses this gap and has already led to a sharp fall in corporate bond yields,” Kulhalli said.
As the markets get back to normalcy, corporate borrowers will find funding available from the bond markets.
“However, in view of the heightened credit risk environment, the initial issues are likely from the top-rated issuers,” Kulhalli said.
The RBI said investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio.
“Exposures under this facility will also not be reckoned under the large exposure framework,” it said.
Banks do not need to provide mark-to-market losses on their HTM books.