Amid the prevailing uncertain business environment, Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the ongoing sharp drop in the banking system liquidity and the concurrent rise in the credit demand might lead to tightness in the financing system.
As per the report, a sudden spike in the short-term interest rate cannot be ruled out. The agency further expressed concerns that the liquidity condition could become even more challenging over the coming months, owing to an expected seasonal pick-up in cash-in-circulation caused by the festive season.
The rating agency further noted that the net balance of payment (BoP) could remain in deficit during the same period, which will drain out more liquidity from the banking system. The report also said that demand for credit is expected to stay strong, driven by higher working capital requirements (WCRs) as well as seasonal factors. Therefore, Ind-Ra said that reinvigorating the system liquidity has become necessary.
