Commercial paper issuances have tapered off in November after outstripping non-food credit offtake so far in 2014-15, data from the Reserve Bank of India show. While total CPs issued in November was Rs 6,850 crore on a net basis, non-food loans disbursed by banks totalled Rs 13,234 crore. This fall in issuances is despite CP rates remaining benign in the market, although a brief rise during mid-November was seen. Rate on the three-month CP averaged around 8.55% in November, down around 40 bps from October. The rate has remained steady so far in December. One-year CPs were around 9%,down 30 bps from October.
Bankers said the fall in CP issues could be an aberration and issuances could pick up in the coming months. “This one month could be a blip. CP issuances are still picking up and, in fact, interest rates on short-term loans are around 200 bps higher than that of CPs,” said Shashikant Rathi, head of debt capital market, Axis Bank.
Banks’ non-food credit offtake saw a pick-up in November, largely driven by retail loans and working capital demand from corporates. As of November 28, non-food credit stood at Rs 61.77 lakh crore, up 11.44% y-o-y. CP issuances as of November-end were up 28.32% y-o-y.
“We are seeing a pick-up in demand for loans from corporates this quarter,” said Pradeep Kumar, managing director of large corporate at State Bank of India.
Many banks are compressing spreads they charge over their base rate to lower-rated corporates to boost loan demand. Union Bank of India had recently cut lending rates for small and medium enterprises by compressing spreads over its base rate for such companies. This could have resulted in a marginal pick-up in loan offtake during November. “Since a base rate cut would hurt margins, many banks have been cutting spreads to boost the credit offtake,” said an executive at a mid-sized public sector bank. Most public sector banks’ base rates are around 10.25% while those of SBI, ICICI Bank and HDFC Bank are at 10%.