Debt market friction

A slow recovery will increase credit risk

The Reserve Bank of India (RBI) last week announced another set of measures to ease financial conditions. It reduced the reverse repo rate by 25 basis points to encourage lending and introduced another targeted long-term repo operations worth Rs 50,000 crore, part of which will go to non-banking financial companies and micro-finance institutions. Apart from easing non-performing asset norms, the RBI opened a refinance facility for institutions such as the National Housing Bank. While some of these measures will help at the margin, they are unlikely to change the dynamics of the debt market materially. Liquidity was anyway not an