Commercial Paper

The reason is the lower interest rate being offered on the CP. Banks, operating as a cartel, have not reduced their prime lending rates, in spite of the recent easing of liquidity. This has led to a situation where, as SBI chairman Kakodkar pointed out, credit demand has dropped.

Banks are not willing to touch companies without a P1+ rating. And there are many such companies. Since the PLR has not been reduced, banks have a problem investing their surplus funds. And going by the high NPA levels in most of their portfolios, they are increasingly preferring to go for only blue chip clients and do not mind compromising on the rates. Market forces are compensating for the artificially high bank PLRs.