ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Coping with the Liquidity Crunch

EPW Research Foundation Coping with the Liquidity Crunch Illiquid Scenario THE situation of severe liquidity shortage is getting reflected in the market players resorting to variousdevices to cope with it. Asexplained in Section II, the slump in the stock markets and the general illiquid scenario have shitted locus from equity to debt instruments hut this has also been accompanied by an unusually high rise in cost of funds. While banks have focused on raising funds through certificates of deposits (CDs) and bonds with such aggressive rates of interest as 16.5-21.0 per cent, financial institutions have sought to raise resources through bond issues at 16 per cent or over, apart from raising them also from foreign markets through floating rate notes (FR Ns) and foreign currency convertible bonds (FCCBs). A host of PS Us are slated to hit the bond market in the early months of 1996 Private corporate* are, however, finding it difficult to raise funds through domestic bonds, and hence are turning to the foreign markets based on the revised guidelines. Increases in prime lending rates by banks and financial institutions, substantial reductions in disbursements by the latter and also in loans by finance companies, corporates' plea lo rollover their loans and interest payments, and even defaults on their letters of credit (LC) commitments, are some of the other devices and repercussions - seen in coping with the liquidily constraints.

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