Commercial paper (CP) issuances in the fortnight ended June 15 were the highest since June 2011 as companies mopped up Rs 71,260 crore via this route, RBI data show.
Commercial paper is an instrument used by companies to raise short-term funds, with tenures ranging between seven days and one year.
Since June 2014, CP issuances have grown 58.79% with the outstanding amount raised being Rs 3.12 lakh crore as on June 15, according to latest RBI data.
Firms have also mopped up R5.13 lakh crore since June 2014 through the corporate bond market, according to latest Sebi data, which also showed that companies raised R1.41 lakh crore from the beginning of this fiscal through this route.
Sebi data show that, in June 2015, firms raised R36,125.09 crore through the corporate bond market — a 97% growth y-o-y.
In stark contrast, non-food credit has seen a miniscule growth of 9.82% during the same period with many companies preferring corporate bonds and CPs to raise funds.
The surge in CP issuances can be attributed to comparatively attractive yields, said Lakshmi Iyer, chief investment officer, Kotak AMC.
“Commercial paper rates have come down between 75 and 100 bps since last June. A AAA-rated company can issue a short-term commercial paper having tenures of two or three months at a rate between 7.75% and 7.90% or sometimes even less,” said Iyer.
The lowest base rate, or the minimum rate at which banks can lend, currently stands at 9.70%. This difference of more than 150 bps has provided a huge fillip to the CP market even as non-banking finance corporations, which are regular borrowers, continue to make use of this cheap source of funding.
“NBFCs are the largest issuers of commercial paper on a volume basis. Certain public sector units like SAIL have also been coming to the market to raise large sums through CPs,” Iyer said.
Firms have also made use of CPs as a temporary borrowing source when bond yields hardened in May following a global selloff. To avoid locking higher yields for long term, companies raised funds through short-term CPs while waiting for the yields to soften.
This contribution from the corporate bond market is also very significant considering that firms mopped up more than R1 lakh crore through corporate bonds in the first two months of this fiscal.
Moreover, banks themselves are now investing in commercial papers. “Banks have been increasingly investing in commercial papers and this is also helping them maintain their liquidity coverage ratio,” said RK Takkar, executive director, Dena Bank.