Companies are accessing as much money from banks as from the domestic corporate bond and commercial paper (CP) market, according to RBI and Sebi data between August 2014 and January 2015.
Several companies have accessed the bond market for funds because of relatively attractive yields, which are lower than interest rates offered by banks.
Between August 2014 and January 2015, banks disbursed R2.9 lakh crore in the form of non-food credit, according to data by the Reserve Bank of India (RBI). A major rise in non-food credit was seen in the last fortnight of October 2014 when banks disbursed R43,561 crore.
Meanwhile, funds raised through corporate bonds and commercial paper between August 2014 and January 2015 amounted to R2.97 lakh crore, according to data by the RBI. This is almost in line with what the banks disbursed during the same period.
The lowest base rate currently stands at 10%, which actually translates into 10.5% or thereabouts for a AAA-rated corporate after banks add a spread to price in the credit risk of the company. However, in the domestic bond market, an AAA-rated company can borrow at around 8.4-8.5%, or slightly higher, depending on the tenure.
Companies have been accessing bank loans primarily for working capital as few projects are taking off; project sanctions saw a sharp fall of 32% in FY14 as a consequence of which disbursements of project loans have been tepid. Companies that are looking for longer-tenure money are picking up money from the bond markets where insurance companies are big buyers.
Some bond issuers are banks themselves, who are shoring up their capital base. That apart, some PSUs have refinanced their existing loans.
Ajay Manglunia, senior vice-president-fixed income at Edelweiss Securities, believes after the RBI cut rates by 25 bps, further rate cuts are likely in the near to medium term. The next cut is expected after the Budget. “Hence, yields are expected to come off across the curve and most issuers might prefer to hit the markets when rates are about 25-50 bps lower than current levels,” said Manglunia.
Indian corporates raised $13.435 billion through external commercial borrowings (ECBs) between August and December 2014 while companies managed to raise around $5.16 billion between August 2014 and January 2015 through offshore bond issuances. Tepid demand from investors following a string of holidays and non-conducive market conditions had slowed down the offshore bond market in the latter part of 2014.
Most bankers are of the opinion that it will still take at least two more quarters to see a significant pick-up in bank credit.