Commercial paper (CP) issuances have crossed the one lakh crore mark for the first time ever, in the fortnight-ended December 15 ,data from the Reserve Bank of India (RBI) shows.  CP issuances in the fortnight have touched  R1.15 lakh crore, taking the outstanding  CPs in the system to a lifetime high of more than  Rs 3.80 lakh crore.

RBI database provides figures as back as June 15, 2011, when fortnightly CP issuances amounted to R20,522 crore. CPs are short-term debt instruments through which companies raise funds for working capital requirements.
Meanwhile, the growth in non-food credit has remained subdued for the better part of 2015-16 so far at sub-11%; outstanding loans in the banking system stood at Rs 69.66 lakh crore as on December 11 compared to R68.68 lakh crore in the previous fortnight — a rise of Rs 98,184 crore.

Lakshmi Iyer, chief investment officer-debt at Kotak AMC believes the  CPs have been issued by both manufacturing companies and Non Banking Financial Companies (NBFCs).“Mutual funds  have cash to deploy and most of it is being invested in commercial paper with the fall in the Certificate of Deposits issuances,” Iyer added.

Some market participants have expressed surprise at the one lakh crore figure for the fortnight-ended December 15 even as fortnightly issuance figure has averaged R61,000 crore over the last few months.

Nevertheless, CP issuances have remained robust throughout the year. Firms also choose to turn towards CP market when rates in the bond markets are higher than their expectations. In these cases, they issue a short-term CP for their immediate funding needs and wait for the right time for the bond yields to come down.

Some firms also tend to reissue their previous CPs which is believed to be a major proportion of the latest fortnightly figure. “A good part of the fortnightly issuances are reissuances of short-term CPs which were issued in September or October,” Iyer indicated.

With the Reserve Bank of India (RBI) cutting the repo rate by a total of 125 basis points in the calendar year 2015, money market rates have fallen by close to 100 basis points. Currently, short-term CPs, for top-rated companies,  are being priced at rates close to 7.40% compared to the 8.37% in January.