Banks invest 25% more in commercial papers in ?09-10

Even as the banks were finding it difficult to reach the 17%-credit growth target,?India Inc had taken?the cheaper commercial paper route to raise resources in 2009-10.??

According to the Reserve Bank of India (RBI), total investments by the banks in commercial papers (CPs) have gone up by almost 25% to Rs 24,874 crore in 2009-10 from Rs 20,001 crore in 2008-09.

The bankers explained that the investments in CPs have increased with corporates flocking to gain from the low rates as the overall rates didn?t fall to the expected level?after RBI had reduced key rates substantially in the aftermath of global financial crises.

Bank of India executive director M Narendra said as long as there is a sufficient liquidity in the market and? top-rated corporates need funds at cheaper costs, the CP market will continue to flourish. Going forward, when the base rate system comes into force since July 1, CP will continue to attract a host of?corporates seeking better pricing.

Golak C Nath, vice-president & economic advisor with the Clearing Corporation of India, said with the financial crises on and equity markets succumbing under pressure, corporates found it cheaper to issue CPs at lower rates. Thus, banks were also coming forward to invest in CPs, thereby pushing up their issuances, he said .

IDBI Bank chief financial officer P Sitaram said that normally, CPs comprise a part of working capital requirement for corporates.

?Corporates can have access to CP at a slightly cheaper rates. Investment opportunity is also there as the CPs are tradable. I think the same trend will continue during the current fiscal year too as economy of the country is growing well and the working capital requirements of corporates are likely to go up.?????

In February and March 2010, when interest rates were moderate, companies were issuing CPs of 50-100 days at 3.35-4.10%. On May 6, Ashok Leyland issued a 100-day CP for Rs 200 crore at 4.65%.

However, there has been a spike in the CP rates in 2010-11, following the central bank?s decision to hike interest rates by a good 50 basis points in the recent months to curb surging inflation. In turn, the banks raised sub-PLR lending and CP rates through which they provide cheaper loans to major corporates.

According to the latest RBI bulletin, investments in bonds and debentures by banks have risen 2.92% to Rs 92,278 crore as on March 2010 from Rs 89,660 crore in the corresponding period of the last year.

RK Gurumurthy, head of trading (financial markets) at ING Vysya Bank, observed that investments in bonds are pretty good and somewhat broad-based.

?We see a lot of investments and trading interest across various tenors and volumes even in shorter non-standard tenors,? he pointed out.

Meanwhile, banks? investments in shares have risen nearly by 7% to Rs 30,201 crore in 2009-10 as against Rs 28,236 crore in 2008-09. Total SLR securities outstanding as on March 2010 have increased by nearly 19% to Rs 13, 82,684 crore as against Rs 11, 66,410 crore in 2008-09.

Banks invest 25% more in commercial papers in ?09-10

Even as the banks were finding it difficult to reach the 17%-credit growth target, India Inc had taken the cheaper commercial paper route to raise resources in 2009-10.