Archive for July 2nd, 2020

Pandemic adds fuel to the central bank digital currencies race

July 2, 2020

My new piece in Moneycontrol.

I argue how the ongoing pandemic has led to a few central banks surging in the race to issue central bank digital currencies.

Impact of Leverage on Firms’ Investment: Decoding the Indian Experience

July 2, 2020

Avdhesh Kumar Shukla & Tara Shankar Shaw in this new RBI WP:

This paper examined the impact of firm’s leverage on corporate investment in India. The findings of the paper suggested that the high leverage of firms has an adverse impact on their capital expenditure. Also, the relationship between leverage and firm’s investment was found to be non-linear.

Leverage at higher level affects investment decisions much more adversely, particularly for firms with lower investment opportunities. Leverage may affect a firm’s investment behaviour in multiple ways. It constrains firm’s capacity to mobilize external resources for financing new projects. It may discourage shareholders from supporting higher capital expenditure through increased borrowings, as in a scenario of high leverage, major gains from investment may accrue to debtholders (Krznar and Matheson, 2018).

We also find that firms increase their leverage during high economic growth phase, banking on the durability of such high growth. The findings of the paper suggest that the initiatives to clean up balance sheets of banks and deleveraging by non-financial corporates should help in the revival of investment cycle.


Government of India’s Special liquidity scheme for NBFCs/HFCs

July 2, 2020

RBI issued a press release on this special liquidity scheme announced by the government:

As per the Government decision, SBICAP which is a subsidiary of the State Bank of India has set up a SPV (SLS Trust) to manage this operation. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities. The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade. The facility will not be available for any paper issued after September 30, 2020 and the SPV would cease to make fresh purchases after September 30, 2020 and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme.


SBI and loan giving NBFCs regulated by RBI, SBICAP type capital market firms regulated by SEBI and the liquidity scheme coming from the finance ministry. Hope it is all being coordinated properly.

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