Private placement of corporate bonds hit a record high of Rs 2.73 lakh crore in the first five months of fiscal year 2018, according to the data from the Securities and Exchange Board of India (Sebi). Compared with this, firms and banks had issued bonds worth Rs 2.42 lakh crore in the same period last year. This is a 12.8% rise in issuances compared with last year.
The highest issuance this fiscal took place in June, amounting to Rs 75,337.32 crore, while August saw issuances at Rs 51,552.13 crore. Firms are increasingly turning towards the corporate bond and commercial paper market for their borrowing requirements with a fall in yields.
This is because money markets and debt markets are considerably more efficient when it comes to rate transmissions than banks. Indeed, rates in the commercial paper market had started to fall two weeks before the credit policy on August 2, while having already factored in a 25 basis points cut in the repo.
Compared with this, banks have been taking relatively longer to pass on the rate cut in their lending rates and even when that transmission happens, it is partial.
Ajay Manglunia, EVP at Edelweiss Securities, points out that a lot of corporates are coming to the bond market considering the efficiency of rate transmission here compared to the banks in a falling interest rate regime.
“A lot of non-banking finance companies (NBFCs) are now increasingly shifting from bank credit to the bond market. NBFCs and housing finance companies (HFCs) are faster in credit disbursements than banks at a time when the latter are focussing more on recoveries of NPA than fresh credit disbursements. As a result, these NBFCs are borrowing more and faster for which the bond market seems to be the appropriate route,” Manglunia observes.
As a result, the corporate bond market has flourished over the past few years. As of June 2017, the outstanding on corporate bonds stood at Rs 24.81 lakh crore, while commercial paper outstanding stood at Rs 3.59 lakh crore as of mid-August.
The one area of the money market that has been sluggish is the certificates of deposits segment, where the outstanding issuances have been hovering around a decade low level. Banks are sitting on excessive liquidity and credit growth has been lower, as a result of which CD issuances have fallen considerably. RBI data shows that the outstanding CDs in the system stand at Rs 1.13 lakh crore as on August 4.