Commercial paper (CP) outstanding in the system has touched a record high of R3.44 lakh crore, data from the Reserve Bank of India (RBI) show. CPs are money market instruments through which companies raise short-term funds. RBI database provides figures till June 2011— a time when CP outstanding were in the range of R1.23 lakh crore.
Dwijendra Srivastava, chief investment officer-debt at Sundaram Asset Management Company, says that a drop in the issuances of certificate of deposits (CDs) have led to a good demand for CPs from mutual funds. CDs are term money market instruments through which banks raise short-term funds.
“Mutual funds have a significant demand for short-term papers. Considering that CD issuances have dropped considerably over the last few quarters, the demand for CP has gone up, which in turn, has also helped trim the borrowing costs for the corporate borrowers. This is why we are seeing such a strong growth in CP issuances,” Srivastava said.
The Reserve Bank of India data show that in the fortnight ended November 15, companies issued CPs worth Rs70,150 crore. This was the third time that fortnightly CP issuances crossed the Rs70,000-crore level after having hit this mark in June and October this year.
Ajay Manglunia, executive vice-president-debt at Edelweiss Securities, says the attractive yields also contributed to the increase in CP issuances.
“The minimum base rate in the banking system is still way above the yields prevalent in the CP market. As a result, companies prefer to raise short-term funds through this segment,” he added.
The lowest base rate in the banking system currently stands at 9.30%.
However, companies can issue two to three months of CPs at yields close to 7.70% — marking a difference of 160 basis points.
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