With banks loath to lower loan rates, more companies are opting to access the bond markets, reports Bhavik Nair in Mumbai. In the five months to August, corporate bond issuances have risen nearly 150 % to R 2.16 lakh crore, more than half the amount companies picked up in 2014-15. In contrast, banks find they have virtually no takers for project loans and the demand for working capital too is weak since companies are tapping the commercial paper (CP) market. Non-food credit has been growing at a sluggish pace — less than 10% year-on-year since April. Between April and August 21, outstanding credit shrank by about 3% or R2 lakh crore. To be sure, most of borrowers in the bond market are PSUs — armed with AAA ratings, they are able to access funds at yields of 8.40-8.50% via long-tenure bonds.
That’s well below the base rates of most banks — State Bank of India’s base rate is 9.7%. Indeed, there are companies that have postponed their bond issuances waiting for a better rate.
The elevated loan rates also explain the jump in issuances of CPs: Between April and mid-August, firms mopped up Rs 5.76 lakh crore, a 45.41% rise over the corresponding period in 2014. Foreign investors have also picked up corporate bonds — as of September 2, they have utilised nearly 77% of the $51-billion quota. Companies, however, haven’t accessed the external commercial borrowing market as much this year, borrowing $8.2 billion between April and July compared with $10.3 billion in the same period last year.