Are Banks Los­ing Out on Loan Busi­ness to Mar­ket?

The Economic Times - - Money & Banking -

Fort­nightly Trend in Low­est CP Rates of ₹ 1.54 lakh crore in the same pe­riod. No­tably, bank credit also in­cludes re­tail and loans to agri­cul­ture, a bor­rower seg­ment with no di­rect ac­cess to mar­ket.

The mar­ket has re­ported gross CP is­suances of over ₹ 55,000 crore a fort­night since the begin­ning of the cur­rent fis­cal begin­ning April 2016. The low­est rate at which a firm has raised CPs is 6.15%, ac­cord­ing to the lat­est Re­serve Bank data. This is al­most 160 ba­sis points lower than the low­est MCLR of­fered by any bank. A ba­sis point is 0.01 per­cent­age point.

“In the cur­rent liq­uid­ity en­vi­ron­ment, cor­po­rates find it in­creas­ingly cost ef­fi­cient to re­place bank work­ing cap­i­tal loans with CPs,” said V Srini­vasan, deputy man­ag­ing di­rec­tor at Axis Bank.

Reliance Jio raised funds at about 6.25% re­cently with ma­tu­rity due around March. In con­trast, the MCLR of SBI is at 7.85-7.90% with one to three­month ma­tu­ri­ties. Top-rated PSU Pow­erGrid Cor­po­ra­tion paid 6.40% to raise three-month funds of ₹ 500-1,000 crore via CPs in the past fort­night, deal­ers said.

“The CP mar­ket still of­fers cheaper short-term rates com­pared to banks de­spite a se­ries of rate cuts by lenders, which also need to pro­tect their mar­gins,” said Lakshmi Iyer, chief in­vest­ment of­fi­cer (debt) and head (prod­ucts) at Ko­tak Mahin­dra Mu­tual Fund. “Cor­po­rates could gain at least 100150 ba­sis points by tap­ping the CP mar­ket .”

The low­est CP rate has fallen by 120 bps since the begin­ning of the fis­cal, at the same pace as the low­est MCLR, an anal­y­sis of RBI data shows.

“Banks may have cut rates but they shall take time to match mar­ket rates,” said Ajay Man­glu­nia, ex­ec­u­tive VP (fixed in­come) at Edel­weiss Fi­nan­cial

Ser­vices. The sub­scriber base of CPs is wider as be­sides the banks, mu­tual funds and in­sur­ance com­pa­nies among oth­ers are a cap­tive tar­get for a CP is­suer be­cause of which CPs get a pric­ing ad­van­tage.

With the cen­tral bank push­ing for deep­en­ing the bond­mar­ket­byre­strict­ing­big­con­glom­er­ates’ac­cess to bank funds, there may be more com­ing to the mar­ket. But that need not nec­es­sar­ily mean lower rates for all times to come. With the en­try of new com­pa­nies to the bond mar­ket and if the ex­cess liq­uid­ity comes back to nor­mal, the tide may turn.

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