Are Banks Losing Out on Loan Business to Market?
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.