No Big Boom

Yet another factor that stands in the way is the absence of a an active secondary market. The secondary trading in CP has remained low for the last two years. The debt market department of the National Stock Exchange recorded trading volumes in CPs of Rs 27 crore per month during 1994-95, Rs 49 crore in 1995-96 and Rs 10 crore in the first five months of the current financial year. These are no great volumes, considering the size of the primary issuances, says a senior banker. It is also for this reason that the maturity of this paper has remained confined to the minimum permitted period of three months, though the rules permit a longer maturity. He adds that banks with liquidity are willing to invest in CPs of three months and not for longer maturities.

 

In spite of hurdles in the growth of CP market, a change is perceptible in the way banks and corporates look at this instrument. Some of the new banks see a distinct business possibility here. Since these late comers on the scene find it difficult to break into the consortia that are financing the blue chip companies, they would like to finance at least their CP programmes. That is, at least one way to get blue chip assets, say some of them.

As for corporates, they were earlier reluctant to issue CP as their credit limits would be correspondingly reduced and not restored automatically. However, with rising liquidity among banks, they feel more confident of winning back their limits. Blue chip companies need not unduly worry on this account as banks too need good clients, according to Ananthanarayanan of Asian Paints.

Additionally, some corporates have begun matching their CPs with the seasonality of their products. Take the case of Asian Paints, for instance. It makes sense for the company to raise money through the medium of CP, at rates cheaper than bank finance, when the demand for its product is on the upward curve.We do not mind even if our cash credit is not restored immediately aftervirtual="/incs/bottom.inc"-->