FIIs in debt shoots up to $4.65 billion in Q3: ICRA report

The foreign institutional investments in debt shot up to $4.65 billion in the third quarter from $0.87 billion, led by compelling yields on the long term bonds and reduced entry restrictions.

Borrowing through the external commercial borrowing route rose to $21.5 billion till November 2011. However, this could moderate in FY13, given the rising premia on forwards contracts, due to volatility in the rupee, that increases the hedging costs for the corporate, according to the report.

Given the excessive tightness in liquidity in the system and the over supply of government bonds, the Reserve bank of India may be forced to buy back bonds worth Rs40,000-50,000 crores from the markets,the report suggests. The bank borrowings from the RBI's repo window rose to Rs1.56 lakh crores on Wednesday.

The rating agency also expects economic growth to moderate between 6-7% in the second half of FY12, owing to slow down in critical sectors like manufacturing and mining, apart from poor rainfall in large parts of Southern India.

13 rounds of rate hikes by the Reserve Bank of India has pushed banks to raise their base rates, which are the minimum lending rates for banks. The credit growth in December slowed down to 16%, much below the RBI's targeted credit growth rate of 18%.