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India’s financial conditions stage speedy recovery after hitting abyss in April: Crisil
Oct-29-2020

Domestic credit rating agency Crisil in its latest report has said that financial conditions in India have staged a speedy recovery from the harrowing abyss they had been sent flailing into by the coronavirus disease (covid-19) pandemic in April, 2020. It said the Reserve Bank of India’s (RBI) measures have helped mitigate the large and broad-based economic damage caused by the pandemic. However, it made it clear that pockets of stress still remain, pointing to the weak bank credit growth, wider spreads on lower-rated corporate bonds, and fundamental pressures due to high government borrowing.

The agency has used 15 conditions for constructing the Financial Conditions Index (FCI), which includes monetary policy conditions, money market, equity markets, external finance conditions, bank lending conditions and money supply in the economy. It said the FCI is designed to give a comprehensive measure of financial conditions for the Indian economy by capturing price and supply variables across financial markets, along with prevailing risk sentiments. It added that not only does it capture the extent of monetary policy transmission across various financial market segments, but also evaluates the policy stance itself in the context of prevailing inflation conditions.

According to the report, the multitude of steps taken by the RBI, coupled with global easing have helped ease the financial conditions in India visibly since April, though weak bank credit growth, wider spreads of lower-rated corporate bonds, and fundamental pressure imposed by high government borrowing indicate that some stress persists. It also noted that while the central bank's accommodative stance should help in the short-run, it remains to be seen until when and to what extent these pressures will be masked.

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