Corporates' Debt Market Foray Led To Lowering

The disintermediation led to a drastic fall in bank credit from the levels prevailing on March 31.

A lot of corporates have been placing commercial papers (CPs) at rates much below the prime lending rate (PLR) of commercial banks which put additional pressure on the SBI to cut the PLR by 50 basis points to 15.5 per cent. Earlier, a number of blue chip companies had moved the SBI to slash their credit limits within the maximum permissible bank finance (MPBF) in view of the low rates in the CP market.

About four months ago major public sector banks like the SBI had imposed credit restrictions on the corporates due to a severe liquidity crunch.

 

The SBI imposed a 15 per cent cut in the quarterly operating limit of its clients in April-June this year. Now, the bank has waived the stipulation but the corporates want the cut because of the low rates prevailing in the CP market, an executive at SBI said.

In the fortnight July 19 to August 2 deposits of all scheduled commercial banks registered a growth of Rs 3,961 crore while the credit portfolio has gone down by Rs 1,193 crore. In the absence of corporate demand for credit investment in government securities has risen. As a result the credit deposit ratio has gone down while the investment deposit ratio has gone up.

Cement majors ACC, Larsen & Toubro, and other companies like Hoechst, Crompton Greaves, Infrastructural Leasing and Financial Services (ILFS), Dabur, Voltas, Pfizer and Sandvik Asia have been able to raise resources at rates ranging between 11 per cent to 13.5 per cent.

Money market sources said the PLR cut by SBI will see a further lowering of rates in the CP market. According to dealers pharmaceutical major Hoechst placed CPs at 11.50 per cent.

ILFS raised over Rs 75 crore in the CP market at 14.5 per cent, which was 1.5 percentage points below the PLR. Apart from raising resources at much below the PLR rates through CPs, corporates like Tisco, L&T, ACC, and Arvind Mills are tapping the debt market to meet their operational and modernisation plans. All the four corporates have lined up public debt issues to the tune of Rs 1,200 crore.

With money market conditions remaining easy, as call rates are in single digits, dealers said the corporates would continue to tap the CP market. In fact Lloyds Finance has lined up a Rs 25 crore CP issue for which it has already been rated by the CARE with a PR1+.