# 1 Markets
1.1 Markets saw a strong recovery on Friday following the Trump administration’s surprise move to pause its tariff escalation for 90 days. The Sensex and Nifty ended higher at 75,157 and 22,828 respectively, buoyed by global relief.
This marks a significant shift in trade policy—Trump’s aggressive stance had rattled the global system, triggering a sharp sell-off in US Treasuries. Contrary to typical safe-haven behaviour, US 10Y and 30Y yields surged from 4.04% to 4.40% and 4.45% to 4.90% respectively in a matter of days—among the steepest moves in two decades. This dislocation mirrored the “dash-for-cash” episode of March 2020, marked by liquidity stress and deleveraging.
Despite the Fed cutting rates by 100 bps since September 2024 (from 5.25% to 4.25%), long-end yields have risen—underscoring market fears of fiscal disruption and supply chain shocks, particularly from China. Higher US yields are also dampening FPI appetite for Indian bonds due to narrowing spreads. The sharp 30 bps spike in 10Y yields over two sessions forced a policy U-turn, with Trump pressing ‘pause’. Markets rallied in response—US indices gained 2.5–3.5% on Friday, led by tech-heavy Nasdaq.
In India, RBI’s rate cuts and expectations of further easing continue to anchor bond yields. The 10Y G-Sec yield eased to 6.44% on Friday, down from earlier levels.
# 2 RBI
2.1.1 RBI April 2025 Monetary Policy: Dovish Shift Amid Global Uncertainty
- MPC unanimously cut the repo rate by 25 bps to 6.00%; SDF adjusted to 5.75%, MSF and Bank Rate at 6.25%. Stance changed to ‘accommodative’, indicating only a pause or further cuts likely going forward.
- By December 2024, 86% of floating loans in private banks were linked to external benchmarks, compared to only 45% in public banks. Thus, lower rate transmission is likely to be more effective.
- FY26 CPI inflation projected at 4.0% (vs 4.2% prior).
- FY26 GDP growth revised down to 6.5% (from 6.7%), matching FY25 estimate.
- Impact from US tariffs estimated to shave 0.3% off FY26 GDP growth.
- CAD for FY25/26 expected to remain below 1% of GDP, aided by resilient services exports, remittances, and lower oil prices.
With inflation expected to align durably with the 4% target (favourable monsoon, lower crude oil prices to offset Re. depreciation) and growth facing external risks, the RBI is expected to cut the repo rate by another 50–75 bps, potentially reaching 5.5% or lower in this cycle. This signals a pivot toward growth stimulation amidst global headwinds, complimented by adequate liquidity provided by RBI, though inflation control remains a balancing act.
2.1.2 Developmental & Regulatory Announcements- Key features on Draft guidelines
- Draft framework introduced on securitisation, complementing ARC route.
- The draft framework enables securitisation through market-based mechanism in addition to existing ARC route under the SARFAESI Act 2002.
- Allow lenders to securitise stressed personal loans, MSME loans and other loans but excludes farm credit, education loans, fraudulent and wilful default accounts.
- Capital requirements for securitisation notes issued under the new directions will be pegged to risk weights assigned by credit rating agencies but capped at the actual securitisation exposure.
- Lenders need to obtain two external valuation reports before securitising the assets.
IBC framework and securitisation allowed in Jan 2023 has improved recovery and asset quality of loans by banks with overall gross NPA declining to 2.5% in December from 3% a year ago. Market based mechanism would thus be on par with international best practices and pave the way for development of junk bond markets in India.
- Expanded draft co-lending norms to include all loans beyond priority sectors and all regulated entities (REs).
- Co-lending has now been extended to all regulated entities as against the current norm of only banks and non-banking financial services companies (NBFCs) being allowed to co-lend together.
- Lenders will also be allowed to provide a default-loss guarantee of up to 5% of loans outstanding under a co-lending or sourcing arrangement.
- Co lending is now extended to non-Priority sector Loans [PSL] segments
The proposed norms will “significantly broaden the scope of co-lending” and will lead to banks scaling up volumes. This could open new avenues for lending to varied borrower segments such as retail, MSMEs (micro, small and medium enterprises) and consumption credit as banks are typically more conservative in the case of small-value loans.
- Draft guidelines for loans against gold tightened to unify conduct and prudential norms for banks/NBFCs.
- The key changes proposed pertain to the classification of gold and silver loans based on their end use, specifically whether the loans are being given as ‘income generating’—say credit for agriculture or to small business—or as ‘consumption’ loans for personal fund requirements.
- The same gold collateral cannot be used concurrently for income-generating and consumption loans.
- The loan-to-value (LTV) ratio for all gold loans by NBFCs and for consumption loans by banks will be capped at 75%.
- No more blanket approvals—income and ability to repay will play a key role.
- Explicitly barred lenders from accepting gold in its primary form—such as bullion or gold bars or even financial instruments like gold ETFs and mutual funds—or re-pledged gold where the ownership of the collateral is doubtful.
Renewal or top-up an existing gold loan within the loan-to-value (LTV) cap adds a layer of protection, ensuring loans don’t spiral into unsustainable debt. Following clear methods to assess purity and value of gold brings more transparency. Preventing gold loan for personal and business use at the same time would ensure better monitoring. These directives are thus designed to ensure responsible lending practices while addressing risks associated with gold collateral loans.
- Non-fund-based exposures proposed to harmonize treatment across REs, including for partial credit enhancements.
- While the guidelines included broadening the framework for non-fund-based [NFB] facilities like LCs and Guarantees, key is enhancement in issue of Partial Credit Enhancement [PCE].
- NBFCs and DFIs can now provide a PCE up to 50% of the bond issue, an increase from 20% earlier. Moreover, proceeds of money raised from the credit enhanced bonds have been explicitly allowed to be used to pay off bank loans.
- PCE has been allowed in India since September 2015, but restrictive capital and investment rules made the instrument a non-starter. RBI is now proposing to reduce capital. On a bond issuance of Rs 100 crore capital requirements would earlier work out to Rs 6.3 crore is now proposed to be lowered to Rs 1.8 crore.
Introduction of partial credit enhancement (PCE) for companies by banks, NBFCs and DFIs may enhance credit ratings by two notches making BBB bond an AA. This could be a potential game changer especially for infrastructure or renewable energy projects, as they will allow companies to access the bond markets at a cheaper rate and open bank loan limits
2.2 As per data released by Govt.,
- The NPAs under Mudra loan have declined to 2.21% in FY25/
- NPA Gap however widens – NPAs with PSU banks higher at 3.6% than private peers and MFIs.
Higher NPAs compared to private and MFI peers raise questions on underwriting quality and risk practices in government-driven credit programs. Higher NPAs endorse the potential credit risks flagged In September 2018 by former Reserve Bank of India Governor Raghuram Rajan under MUDRA scheme.
2.3 Key takeaways from Profitability Outlook for Indian Banks (FY26) released by ICRA last week
- ICRA expects profitability to moderate in FY26 due to – Slower credit growth, Elevated cost of deposits and Rising asset quality concerns.
- Return on Assets (RoA) expected at 1.1–1.2%, Return on Equity (RoE) projected at 12.1–13.4% and Net Interest Margins (NIMs) likely to decline by 15–17 bps in FY26, driven by a 75-bps repo rate cut expected from February 2025 onward.
- Pressure on lending yields due to lower external benchmark-linked loan rates and competition from debt capital markets.
- Credit and deposit Growth estimated at 10.8% in FY 26 lower than 11% in FY25 aided through supportive regulatory measures including, repo rate cuts, deferment of LCR changes and infra project provisions and Roll-back of higher risk weights on NBFC lending.
- lenders are likely to continue seeing pressure on cost of funds due to competition for deposit mobilisation caused by elevated CD (credit-deposit) ratio
- Asset Quality Concerns include emerging stress areas in unsecured personal loans and small business loans, private banks witnessing uptick in fresh NPA generation, while rapid growth in retail credit over recent years has strained borrower repayment capacity.
- GNPA ratio, which moderated to a decadal low of 2.5 per cent in Q3FY25, could rise to 2.6 per cent in Q4, and 2.8 per cent by FY26-end.
2.4 Key takeaways from the RBI Enforcement Actions report for FY 2024-25
- RBI took a total of 79 enforcement actions against regulated entities, comprising 48 actions against NBFCs, 30 against banks, and one against a Credit Bureau.
- The total penalty imposed was Rs 33 crore (Rs 3291.5 lakhs), with banks accounting for 82% of the penalty amount (public banks 22% private banks 53%) while making up only 38% of the penalty cases. While for NBFCs it was Rs. 5.73 cr. Base-layer NBFCs received a significant portion of penalties, with Rs 3.7 crore imposed on them, highlighting their higher risk in terms of regulatory compliance.
- The enforcement actions were driven by various compliance issues, including Non-compliance with KYC norms, Violations of the Fair Practices Code and Issues surrounding corporate governance and digital lending guidelines.
RBI’s penal actions are aimed at bringing sustainable and uniform practices within the overall framework in the financial eco system.
2.5 Key takeaways from the Reserve Bank’s Order Books, Inventories, and Capacity Utilisation Survey for Q3:2024-25 and Industrial Outlook survey covering 1032 manufacturing companies.
- Capacity utilisation increased to 75.4%, up from 74.2% in the previous quarter. The seasonally adjusted capacity utilisation also rose to 75.3%.
- Manufacturers reported higher growth in new orders on both a q-o-q and y-o-y basis, indicating improved demand conditions.
- The Business Assessment Index (BAI) for Q4:2024-25 improved, indicating more optimistic business assessments.
These findings suggest a cautious optimism in the manufacturing sector, with both capacity utilisation and order books reflecting positive trends. Signs of growth is tempered by cautious expectations around costs and margin.
2.5 Key takeaways on inflation expectations
- Households’ median inflation perception declined by 50 basis points from the previous survey round [in February] to 7.8%, marking its lowest level since the pandemic
- Inflation expectations over three months and one year ahead also moderated 40 bps and 50 bps to 8.9% and 9.7%, respectively, showed the survey finding
Indian households’ expectation of higher inflation has shrunk to the lowest since the pandemic, prompting RBI to cut repo rate by 25 bps last week.
# 3 SEBI
3.1 SEBI has introduced the Past Risk and Return Verification Agency (PaRRVA) to improve transparency and trust in India’s financial markets. This initiative aims to verify the risk-return profiles of financial products and services, providing credible, standardized data to investors, advisers, analysts, and algorithmic traders.
Key Elements:
- Credit Rating Agencies [CRAs] must have ≥15 years’ experience, ₹100 crore net worth, and over 250 issuers rated.
- Stock Exchanges acting as PaRRVA Data Centres need ≥15 years’ operations, ₹200 crore net worth, national presence, and strong grievance redressal systems.
PaRRVA enhances investor confidence by ensuring risk-return data is verified and reliable, thus minimizing misinformation. It also benefits intermediaries by enabling standardized and credible disclosures, improving advisory quality and market integrity. Hopefully we don’t see ILFS like fiascos.
# 4 Economy
4.1 Moody’s Analytics in its outlook report
- has lowered India’s calendar year 2025 GDP growth forecast to 6.1%, down by 30 basis points, mainly due to the potential impact of new US tariffs.
- This comes amid a broader economic slowdown in India, with Q3 FY25 GDP growth at 6.2%. To meet the FY25 target of 6.5%, the economy must grow 7.6% in Q4, which appears challenging given weak domestic demand and global uncertainty.
- Moody’s adds that India’s limited export dependency may buffer the overall impact.
It may be interesting to note that separately, both the RBI and ADB have revised FY26 growth projections downward to 6.5% and 6.7% respectively.
4.2 As per data released by Govt. on Friday,
- India’s Index of industrial production (IIP) growth rate for the month of February 2025 slowed down to 2.9 per cent against 5 per cent in the month of January 2025.
- The growth rates of the three sectors, Mining, Manufacturing and Electricity for the month of February 2025 are 1.6 percent, 2.9 percent and 3.6 percent respectively.
- Within the manufacturing sector, 14 out of 23 industry groups at NIC 2 digit-level have recorded a positive growth in February 2025 over February 2024.
- In the industry group “Manufacture of motor vehicles, trailers and semi-trailers”, item groups “Auto components/ spares and accessories”, “Axle”, “Commercial Vehicles, have shown significant contribution in growth.
RBI’s step in reducing the repo rate is thus timely to promote growth of IIP.
# 5 PE/VC
- Q1 2025 Startup Funding Trends in India – VCCircle Analysis
- After two consecutive years of decline, the number of Indian startups receiving funding rose 10% YoY in Q1 2025 to 318 startups; This is still only about half of the Q1 peak from three years ago.
- VC deals in Q1 2025: 116, slightly below 127 in Q1 2020; peak in 2022: 220 deals.
- Angel and seed deals in Q1 2025: 202, up from 196 in Q1 2024, marking a 3.1% increase.
- Overall, VC deal volume rose ~10%, and angel investment activity surged 23.4% YoY.
- Average deal size across all startup funding: over $8 million, consistent with pre-pandemic levels.
- VC average deal size increased marginally from $19.7M to $20.5M.
5.2 Key takeaways from the report on FinTech personal loans by Fintech Association for Consumer Empowerment [FACE] for the period April 2018 – Dec 2024
- As of FY 24-25 (until Dec 24), FinTech loans represent 13% of the personal loan market by sanction value but account for 76% of sanction volumes, indicating a focus on smaller, underserved segments that require small-value loans,
- During FY 24-25, more than two-thirds of the sanction value was directed towards young customers under 35 years of age, with 85% being males. Approximately a third of these loans were given to customers from Tier III cities and beyond.
- The average ticket size of loans is slightly under Rs 10,000, with variations based on geography and customer age; larger loans are more common in metro/urban areas and for older borrowers.
- 49% of active loans are held by FinTech NBFCs, representing just 5% of the total value of personal loans outstanding as of December 2024. This reflects a high number of small-value loans being distributed.
- There is a notable increase in loans with higher amounts outstanding, which rose by 9% from September 2024 to December 2024.
- The breakdown of loans by ticket size reveals that 39% of FinTech loans are under Rs 25,000, while only 4% exceed Rs 5 lakh, indicating a strong bias towards smaller loans relative to other NBFCs and banks.
- The loan default rates (over 90 days) differ significantly among genders, age groups, and borough vintage, indicating that the risk profile is diverse within the FinTech lending market.
- In FY 24-25, sanctioned value distributed across various demographics is notable: 15% to females, 36% in rural, 53% in urban areas, and various distributions across Tiers, with 39% to Tier III and beyond.
These findings illustrate the rapid evolution and vital role of FinTech personal loans in the overall personal loan market, pointing to escalating demand for accessible digital credit.
Titbits:
Former Treasury Secretary Timothy Geithner quipped last week that if re incarnated, he wishes to be born not as President of US but as Bond Market. Yes, the World at last found tool to force POTUS to blink, a force he cannot combat- bond markets.
Normally in troubled times, US Gilts rise as global safe heaves, instead they slid down indicating a panicky disappearance of all safe heavens. Instead of Treasury yields staying low, they suddenly spiked dramatically higher – we saw one of the wildest trading swings for 10-year yields in two decades as investors dumped nearly $30bn of Treasury bonds w