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Report on Banking Sector_Jul’24 – Lending Viability to Liability: Building The Infrastructure Bond Book

The Report analyses the impact of RBI’s latest draft proposal on LCR. While concluding that even post the decrease in LCR if the regulations were to crystallise in their present form, it argues that it is a sign for banks to diversify their liabilities side. This is especially the case given the currently high C/D ratio and moderation in the amount and mix of deposits. Infra bonds are proposed as an apposite solution to this issue based on their inherent advantages on the statutory front and currently thin spreads they enjoy vs. other sources of funds for banks. Estimating a significant uptick in the issuances of infra bonds in FY25, the Report also argues that there is ample demand for such instruments from patient investors. It concludes by expounding the impact on Union G-sec yields and yield curve, contextualising the present move as one step in a continuous regulatory evolution.

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