The excess supply of loans in India is likely to bring down lending rates by 50-100 basis points by September 2017, BofA Merrill Lynch Global Research has said in a report.
It has projected that the Indian loan market should see potential excess supply for the first time since 2013. BofA Merill Lynch expects $50 bn of reserve money injection this fiscal. This, it says, potentially allows for a 17.6 per cent growth in loan supply which is higher than its estimated FY17 loan demand of 15.4 per cent.
“Excess credit supply is likely to continue in FY18 as well as the RBI continues to extinguish the structural liquidity deficit in the money market. This excess credit supply should help catalyse lending rate cuts by around 50-100 bps by September 2017,” the report said.
On G-Secs, the report says that the aggressive rally of India bonds after the recent RBI policy meeting, BofA Merill Lynch’s 7 per cent forecast on 10-yr India bonds is very close to being achieved. “We believe that the rally is not over yet and there is still some juice left,” the report said.
It has said that this is due to (a) RBI’s reiteration of its commitment to move towards removing the structural liquidity deficit which could lead to total purchase OMOs of Rs 2,00,000 crore in FY17; (b) expectations of further rate cuts by 25-50 bps in the next 6 months; (c) re-ignition of hopes on reforms after the passage of GST bill in the upper house of the Parliament and (d) supportive external environment.