Cash rich corporates are shying away from lending in the inter corporate deposit (ICD) market and instead parking their short term surplus in gilts.
Corporate borrowers are now finding it tough as despite a glut in liquidity, short term finance from the ICD market is proving difficult to raise, with banks extremely cautious in extending credit.
According to a treasury official at Lloyds Finance Ltd, "Despite high liquidity, there are not many players in the market. Cash rich companies are opting to park their funds at safer avenues such as government securities and bank deposits instead of lending in unsecured instruments such as the ICD market. The idea is to park money at safer avenues than get high returns."
Consequently, the number of players in the ICD market have come down and also the need for money is not very high, which is making the market very dull, felt the players in the markets. "The number of deals that we did struck about six months have come down by nearly 20 per cent now," they added.
Confirming this, head of corporate treasury at Kotak Mahindra, Kaushik Modak said, " For AAA rated companies like ours funds are now available in the region 12 to 12.5 pre cent as against 16 per cent a few months back.
However, corporates other than AAA rated ones find it extremely difficult to raise funds even at higher rates, despite their availability
With the south ward movement in the interest rates witnessed since the announcement of first half of the credit policy for the current financial year, ICD rates have also aligned downward. The rates have fallen by nearly 400 basis points across the board for all category of borrowers.
"Besides, the frequent downgrading of companies by the credit rating agencies have made the players in the ICD market very nervous. They have become selective about lending in this market. One never knows when the company we have lent to would be downgraded," Modak said.
"Since the demand for money is not very high we are regularly reducing the rates. In fact, the trends have now reversed whereby we are approaching the triple A companies and asking them to borrow funds from us," said a senior official from Mafatlal Finance Ltd.
The borrowing rates for a triple A manufacturing company have fallen to 10 - 12 per cent, double A to 14 to 15 per cent and single A to 17 to 18 per cent.
"Due to excess of liquidity, the difference in lending rate for top rated non banking finance companies and manufacturing companies too have narrowed down by nearly 50 basis points," pointed out officials of a leading NBFC. "However, the market is still very selective about lending to a mediocre companies," he added.
