Commercial Papers Surge To Rs 977 Crore

Corporates are seen raising short-term funds through commercial papers (CP) route as it has emerged a cheaper alternative over bank loans.

Since April 15, cost of funds through CP route is in the band of 7.7 per cent to 12.3 per cent, with lower interest rates for AAA rate companies as against nationalised bank PLR being in the band of 14 to 14.5 per cent.

Commercial or non-food credit has failed to pick up despite across-the-board interest rate cuts by banks and financial institutions and a plethora of de-regulations in bank lending norms by the Reserve Bank of India (RBI) in its first-half credit policy on April 15. This is evident from the RBI statistics, where CPs issued by corporates has been consistently moving up, it has increased to Rs 977 crore on May 15 against Rs 702 crore on the day of credit policy announcement. Commercial credit shrunk by Rs 299 crore to Rs 2,70,264 crore during the period-ending May 9. However, overall bank credit went up by Rs 282 crore to Rs 2,78,211 crore. This was on account of a robust increase in food credit by Rs 581 crore. That apart, bills discounting by banks and purchase of foreign bills went up by Rs 311 crore and Rs 60 crore respectively during the same period.

 

Most of the banks are in the process of finalising their balance sheets. Hence the task force is unable to focus on the loan appraisals at the head office. This has led to a marginal fall in credit disbursements as a result corporates are opting the CP route for short-term funding, said a senior official with a Mumbai-based nationalised bank.

This trend, however, will eventually reverse after June as corporates cannot rely only on the CPs on a perpetual basis for working capital requirement, it is essentially a stop gap arrangement, the official added. Interestingly, other asset side item in the bank's balance sheet-investments by banks in government securities and also balances with other banks have also moved southwards. Gilts investments declined by Rs 895 crore to stand at Rs 1,67,657 crore during the fortnight-ending May 9 and balance with other banks went down by Rs 1,380 crore to Rs 8,458 crore during the same period.

Meanwhile, banks' liabilities witnessed modest rise, aggregate deposits grew by Rs 1,958 crore during the fortnight-ended May 9 to stand at Rs 5,12,035 crore. Falling interest rate scenario has moved depositors from demand to time deposits. Demand deposits declined by Rs 1,530 crore to Rs 85,397 crore, time deposits grew by Rs 3,488 crore to touch Rs 4,26,638 crore.

Continued presence in the forex market by the regulatory authority in mopping up the dollar in a bid to keep the Indian currency from gyrating has ballooned its reserves. The foreign currency reserves has increased by $250 million to touch $27.78 billion on May 23. The jump in the reserves was only on account of the expansion in foreign currency assets which went up to $ 23.82 billion-an increase of $250 million. While the gold stock remained unchanged at $3.9 billion, the stock of Special Drawing Rights was $3 million.