Fundraising through commercial paper (CP) in June was at the highest level in 2023, aided by lower borrowing costs amid surplus liquidity in the banking system, experts said.
Companies raised Rs 1.51 lakh crore, the highest amount in 2023, up 27.4 percent from Rs 1.18 lakh crore in May, according to Prime Database.
Commercial paper is a debt instrument through which companies raise funds for periods ranging from seven days to one year.
“Fall in short-term rates due to a surge in surplus liquidity in the banking system on the back of Rs 2,000 notes coming back to the system and government spending led to a rise in issuances of CP,” said Umesh Kumar Tulsyan, managing director of Sovereign Global Markets, a fund house in New Delhi.
Venkatakrishnan Srinivasan, Founder of Rockfort Fincorp, said most entities preferred to tap the capital markets as working capital loan rates of banks were very high compared to commercial paper rates, which were available in the 6.80-7.60 percent range across three-month to one-year tenors.
The rates on these instruments fell 10-15 basis points in one month for paper maturing in three months. CPs maturing in three months are the most traded in the secondary market.
Also read: Are corporate green bonds losing sheen? Issuances halve since 2022 due to lower investor appetite
Big borrowers
The data showed that the Small Industries Development Bank of India, National Bank for Agriculture and Rural Development, Reliance Retail Ventures, Housing Development Finance Corp. and Bajaj Finance were the top five issuers of CP so far in 2023.
These entities together raised Rs 2.59 lakh crore, which is 36.68 percent of the total from January to June. So far in 2023, Indian companies raised Rs 7.06 lakh crore through CPs.
Rates on commercial paper moderated in June due to comfortable surplus liquidity. The rates fell 10-15 bps on-month in June.
CPs issued by non-banking finance companies maturing in three months traded at 7.05-7.20 percent at the end of June, compared with 7.15-7.30 percent on May 30, according to data compiled from money market dealers.
Papers of three-month maturity issued by manufacturing companies traded at 7.07-7.27 percent on May 30 and fell to 6.93-7.08 percent on June 30.
Liquidity support
Liquidity support had a lot to do with these rates coming down, and to remove excess surplus liquidity, the Reserve Bank of India conducted eight variable rate reverse repo auctions and one variable rate repo auction in June.
According to RBI data, the central bank conducted reverse repo auctions worth Rs 7.5 lakh crore, in which banks parked Rs 214,864 crore. Srinivasan said banks were reluctant to park all their funds with the RBI as the bond markets offered better returns.
“Investors show greater interest in capital market instruments when they have ample liquidity,” he said.
The variable rate repo auction on June 19 got an impressive response from banks because by that time, the liquidity surplus had narrowed due to outflows on account of advance tax payments.
Also read: RBI's move to withdraw Rs 2,000 notes to comfort short term rates
Certificates of deposit
According to the data, banks raised Rs 72,785 crore through certificates of deposit in June, an almost two-month high. So far in 2023, banks have raised Rs 3.87 lakh crore through certificates of deposit.
Certificates of deposits are issued by banks to raise funds from the debt market for a shorter period of time.
Canara Bank, Punjab National Bank, Axis Bank, Indian Bank, and Union Bank of India were the top five issuers in 2023 and together raised Rs 2.08 lakh crore.
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