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Credit Disintermediation From Banks – Has The Corporate Bond Market Come Of Age?

Jan 03, 2018: The Reserve Bank of India today placed on its website the ninth release under the series ‘Mint Street Memos (MSM)’ titled “Credit Disintermediation from Banks - Has the Corporate Bond Market Come of Age?” The paper authored by R. Ayyappan Nair from Reserve Bank Staff College, M V Moghe and Yaswant Bitra from Financial Stability Unit analyses credit disintermediation from banks.

Abstract: The significant increase in inflows into mutual funds and their subsequent deployment is altering the scope of disintermediation in India. We look at this evolving milieu and its implications for bank intermediation in general and credit portfolio of banks in particular. We find that there is, (i) a gradual shift in corporate borrowings from banks to mutual funds as reflected in the contraction in corporate spreads for near-investment grades; and (ii) a significant differential between the risk-free rate and the benchmark lending rate for banks, viz., Marginal Cost of funds based Lending Rate (MCLR), which has given rise to disintermediation of bank credit for quality corporates.

The views and opinions expressed in MSM series are those of the authors and do not necessarily represent the views of the RBI.

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