RBI should start buying corporate bonds to provide liquidity: Deepak Parekh

In a bid to fight the adverse fallout of the coronavirus disease (Covid-19) lockdown, the Reserve Bank of India (RBI) should start buying corporate bonds to provide the much-needed liquidity support to corporations, said Housing Development Finance Corporation (HDFC) chairman Deepak Parekh.
 

According to him, interest rates will go down further, but banks must pass them on to companies. RBI lends only to banks in India and banks are concerned more about their own balance sheet rather than national interest, he said.
 

RBI must start buying company bonds, Parekh had said in an interaction with members of the Young Entrepreneurs Organisation on Friday.
 

RBI has slashed policy repo rate by 75 per cent to 4.4 per cent for banks to draw funding from its liquidity window. In response, most banks have also reduced lending rates on various kind of loans. RBI also permitted banks and finance companies to grant borrowers a three-month moratorium on loan repayments till the end of May 2020. He called for prudence in banking relationship with the advice “build relationship and trust with the banks. Don’t move relationships for a quarter or half a per cent”.
 

Emphasising on primacy of capital, he said companies must increase equity. To be over capitalised is better than to be over leveraged, he felt. “Being over leveraged will be a disaster and avoid debt trap at all costs. Give a discount, let investors make money. Get private equity. Singapore Airlines is doing a rights issue as we speak,” said Parekh.
 

He added, the rupee will be under pressure. “Look at a minimum three per cent depreciation year-on-year of the rupee even in the best times. We are doing much better at the moment with 10 per cent depreciation (many are at 25 per cent).” He said trouble will ensure only if our rating goes to junk. “Our (India’s) rating, unfortunately, has not gone up even in our best years of 8 per cent growth. However, companies are getting good borrowing rates.”
 

“The yield on USA’s 10-year paper is 0.77 per cent. In India, it is above six per cent. India is at a BBB (lowest investment grade). If we get graded down, we will become a junk bond and this will crash the economy. This is also why it will be difficult to print money,” Parekh said.