The mutual fund industry, which witnessed large redemption pressure in debt funds during March, believes that risk aversion by banks may aggravate the sector's liquidity concerns despite Reserve Bank of India's liquidity measures.
The concern in the debt market, currently, is lack of appetite towards non-AAA papers as banks are willing to lend only against high quality debt papers.
With the uncertainties about impact of covid-19 on economy and business, mutual fund industry feel that the crisis has deepened.
Credit aversion in the banking system has been festering since the failure of IL&FS in September 2018 and since then economic conditions have only worsened. "What debt markets are facing currently is lack of risk appetite in the market