Even as banks have started jacking up their base rate as well as benchmark prime lending rates (BPLR) after the Reserve Bank of India (RBI) raised its key rates ? repo and reverse repo ? by 25 basis points, the corporates are returning to the commercial paper (CP) market in a big way.

The average daily volume in CP market has doubled to almost Rs 1,000 crore since January 25 when the RBI announced hike in its key rates to tame inflation.

Before January 25, the daily CP average during the fortnight had been in the range of Rs 500-600 crore. The demand for CP has also pushed up its rates. The cost of of one-year CP has steadily risen by 30-35 basis points to an average of 10.60% since January 25.

Similarly, the the rates for three month and six month CP also moved northwards in the range of 25-30 basis points. On Monday, one-year CP was available at 10.65% while three-month and six-month CP were quoted at 10.25% and 10.45% respectively. According to data in FIMMDA, the corporates have raised Rs 1,102 crore through 23 deals.

Nagesh Pydah, chairman and managing director of Oriental Bank of Commerce (OBC), said the growth of CP market will depend upon the liquidity that has improved a lot since last two last weeks.

Banks? daily average borrowing from the RBI?s repo window has dropped below Rs 1 lakh crore in last fortnight. On Monday, banks mopped up around Rs 91,000 crore from RBI.

?There is liquidity with the banks and banks treat their investment in CP as an indirect lending. Hence, they will continue to do it as long as the rates are as high. In my bank?s case, we have invested a sum of Rs 125 crore so far. Corporates are not loyal to any financial institution. Wherever they will find cheaper money, they will go for it,?? Pydah said.

VK Khanna, general manager of Union Bank of India, said that after the quarterly review of money policy, since Januray 25, banks had started raising their base rate and BPLR. As a resultm the ability of corporate houses to borrow from banks have declined.

?The CP is outside the working capital and they are given on a standalone basis. In my bank?s case our exposure to the CP is at Rs 1,000 crore,? he said.

The money market and call rates are as low as 7% today. But.as the CD rates have gone up , the CP rates also move up accordingly, he said.

Khanna further said that liquidity was easing now. ?The banks are borrowing less from the RBI through repo window. Government spending has also started. I hope liquidity will ease further in days to come.?

For the fortnight ended January 28, 2011, the increase in non-food credit has been 23.1% year-on-year, at Rs Rs 37,85,998.62 crore. This is in line with the year-on-year growth seen in the previous fortnight. Altough it is a tad lower than the increase seen in the fortnight ended December 31, 2010. Banks lent Rs 18,119 crore over the previous fortnight ended January 14, 2011.