Dirt Cheap Working Capital For Top 100 Corporates

Indias top 100 corporates ranked on the basis of the quality of their assets are obtaining working capital finance at extremely low rates of 8 to 9 per cent by forcing different banks, including the State Bank of India, to buy instruments like commercial paper (CP) and non-convertible debentures.

In fact, some corporates are reported to have started asking banks to bid for their CP issues rather than negotiating with them. Funds-flush banks are giving in to these demands from creditworthy companies. In sharp contrast, most other companies are being extended credit at 16-17 per cent.

After the Reserve Bank unveiled the busy season credit policy last week, senior bankers had confidently predicted that they would move away from low-earning CPs, while offering finer rates to AAA-rated companies. The reverse has happened, according to banking circles.

 

Banking sources said the busy season credit policy has also prompted a number of banks to deploy their manpower to aggressively market credit in a bid to avoid excess liquidity in future as the cash reserve ratio (CRR) cuts envisaged in the policy take effect.

Says the chairman of a leading nationalised bank: We have to get into such aggressive marketing. We also anticipate a rise in sanctions, but disbursals would be the actual barometer of whether credit offtake is actually picking up.

On the other hand, bridge loans, as a credit disbursal option, are being viewed with caution by a number of banks, particularly after the M S Shoes debacle.

The RBIs decision to infuse about Rs 10,000 crore into the banking system has prompted financial strategists to put more pressure on banks. On their part, banks are extremely vulnerable because the call money market ruled at low levels of 6-8 per cent last week. Source said SBI and other banks are pulling out money from the call market to invest in CPs.

CP rates are almost becoming a bench mark for lending to top corporates. I think AAA companies are accessing over 40 per cent of their working capital requirements in the form of instruments like CPs, non-convertible debentures and bills discounting, the corporate banking chief of a foreign bank said.

Rates on CPs issued by AAA companies have come down nearly 100-150 basis points. Financial market sources said SBI is even more aggressive than foreign banks and is buying CPs at cheaper rates. This is because the CRR cut will release more than Rs 2,000 crore to SBI, which might result in a liquidity problem.

SBI may also be trying to block the entry of financial institutions into working capital finance to the extent possible by picking up more CPs at lower rates. It is doing nothing to discourage the growth of deposits, the chief financial advisor of a Delhi-based company said.