A wave that derisks liquidity

Amit Gupta, Group CFO at Arka Fincap explains how the wave of data and Al/ ML aids liquidity risk management:

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Ravi Lalwani: What are your concerns about cash flow liquidity risk and market liquidity risk in the volatile global scenario marred by war, natural calamities, supply chain disruptions, geopolitical rivalry, etc.?

Amit Gupta: Liquidity risk has become a critical concern in today's volatile global environment. It is evident that liquidity within the ecosystem is tightening, with a marked reduction in the surplus liquidity that was once in circulation. The availability of funding is no longer as accessible as it used to be. Geopolitical tensions, along with unfavorable global circumstances, have created significant uncertainty around liquidity. Additionally, global interest rates have steadily risen over time, with no correction post-covid. The inflationary pressures and external economic challenges have prompted the RBI to hold interest rates steady in India as well.

In the Indian context, liquidity in the debt market has been drying up. To control inflation, the RBI has employed various measures to manage liquidity.

Investors' focus has also shifted - moving away from deposits towards other fixedincome instruments and equity markets.

While banks have increased deposit rates to attract more funds, the credit-deposit ratio remains a challenge. This has led to a spike in short-term lending rates, pushing Commercial Paper (CP) and Certificate of Deposit (CD) rates higher.

Globally, the ongoing volatility and uncertainty hinder the ability of developing economies to take aggressive steps toward growth. If liquidity does not improve and interest rates remain high, it could create challenges for the overall credit market.