Bluechips migrate to CPs as base rates bite

The base rate regime where no banks are allowed to lend below base rate since July 1 has started taking a toll on some of the banks.

While the public sector banks (PSBs) which have fixed their base rate at 8% have started losing bluechip companies, including oil companies, the private sector banks have seen their clients moving to commercial paper (CP) market.

The bluechip companies are either going for cheaper borrowings from other banks or raising resources through issue of commercial paper and non-convertible debentures (NCDs).

HSU Kamath, executive director, Canara Bank, the fourth largest PSB said: ?My bank has seen a trend where some of the corporate borrowers with short-term loans are repaying their loans while a few have shifted to those banks which are offering lower base rate.

According to Kamath, some others have turned to the commercial paper (CP) market. Though it has happened across the board, most of the top-range customers have shown this kind of behaviour change, he said.

Arun Kaul, ED, Central Bank of India confirmed: ?Yes, some of the big borrowers like oil companies have shifted to those banks offering them a cheaper base rate than ours. Similarly, some of the mid-sized corporate borrowers have shifted to cheaper money market instruments like CPs and NCDs.?

Harish Engineer, ED, HDFC Bank also said that the bank has seen major shift of AAA-rated companies to CP and NCD market.

An official from Bharat Petroleum Company Limited (BPCL) official said the company goes for bidding to borrow short-term funds from banks. ?Whoever offers us the best rate, we go to them,? he said.

The banks had made a presentation on the impact of base rate before the Reserve Bank of India(RBI) on July 27, when the central bank announced the review of monetary policy. State Bank of India in its presentation had said that its short-term corporate borrowing has come down by Rs 10,000 crore since base rate was implemented. This is despite the fact that SBI has kept its base rate at 7.5%, below its PSB peers. The bank has requested RBI to let it lend to corporates for 5-15 days below the base rate. Similarly, state-owned banks like Dena Bank have lost Rs 1,000 crore of lending portfolio while Punjab & Sind Bank has seen its short-term lending portfolio falling by Rs 2,000 crore.

RK Bakshi, ED, Bank of Baroda has said that more than shifting to banks, big corporates are shifting to the commercial paper market. ?A very small percentage of 2% of those customers have shifted their accounts to the base rate, whose accounts have come for renewal after July 1,?’ he said.

P Sitaram, CFO, IDBI Bank said that the interest rate on some of the short-term corporate loans have gone up since the base rate came into being.

?But the good thing is that our yield on advances will get protected as lower-yielding loans are not there anymore. As regards corporates, only those of them having very good ratings will move towards CPs. Again, we have a major role to play on that front too.

Normally, such loans comprise 10-15% of our entire loan book. Out of them, only 10% of accounts have shifted to the CP route so far.? Bankers say while Reliance Telecom has raised nearly Rs 1,000 crore through CPs at 7%, Tata Telecom has raised Rs 300 crore to meet working capital needs through a line of credit with a maturity of 90 days.