Even as loan growth remains muted, banks have increased funding to corporates by way of investments in commercial paper (CP) and bonds, which have risen 20%.
Investments in corporate bonds also termed as non-SLR (statutory liquidity ratio) investments, have gone up Rs 23,080 crore or 20% since end March 2010 from Rs 115,906 crore to Rs 138,986 crore in August 13, according to the data latest released by RBI.
However, investments had dipped Rs 9,359, or 9%, in the year-ago period from Rs 104,773 crore to Rs 95,414 crore. These investments, however, exclude investments in mutual funds.
Data released by the central bank indicates that investments in CPs have gone up the steepest by Rs 9,854 crore or 40% from Rs 24,791 crore to Rs 34,645 crore. While that in stocks and bonds have gone up by Rs 4,535 crore and Rs 8,690 crore, respectively. Moreover, banks have a relatively higher exposure in these instruments.
From a corporate’s perspective, with the base rate system in place, their negotiating power for finer rates in case of short-term loans has significantly dipped compared to the system prevailed in the earlier BPLR (benchmark prime lending rate).
In the earlier system, corporates could negotiate rates at a significant discount to the BPLR. However, with the new base rate system in place, such discounts have been done away with. As a result, corporates are choosing to raise short-term funds through the CP route.
Outstanding CP issuances have risen by over Rs 30,000 crore this year to over Rs 100,000 crore as of mid-July— almost 45% higher to that prevailing in the year-ago period.
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