Companies make a killing as call soars

While banks are scrambling for funds, companies with surplus cash are raking in the moolah.

According to banking sources, quite a few top notch companies are sitting on funds borrowed at sub-prime lending rate (PLR) rate. PLR is the benchmark for banks to lend and AAA companies manage to bargain rates below PLR.

Since banks are scurrying for funds even at an exorbitant 15-20 per cent for two-three days, most of these companies are offering funds to banks as certificate of deposits. As for the CDs, the rates by banks range from 10-15 per cent for 7-15 days and 9.25-9.5 per cent for a year.

Many companies use collateralised borrowing and lending obligation (CBLO) window to lend at rates ranging between 10.50 and 13 per cent.

In the process, companies have earned a profit of 3-4 per cent. CBLO is similar to the repo window of the RBI where banks could raise funds by putting government securities as collateral.

On the other hand, owing to the uncertainty over interest rates, most public sector undertakings such as Indian Oil Corporation, Power Finance Corporation, Indian Railway Finance Corporation, Rural Electrification Corporation and Food Corporation of India have postponed their borrowing programme from the corporate debt market, said market sources

The corporate debt market has been illiquid since trading has practically come to halt following uncertainty in the government securities market.

The companies are waiting for the market to improve in January when liquidity is expected to ease with government expenditure.

The liquidity situation has worsened after the RBI hiked the cash reserve ratio by 50 basis points on December 8. The hike coincided with the advance tax outflows of around Rs 32,000 crore.

A few top notch companies are sitting on funds borrowed at sub-PLR rates

Since banks are scurrying for funds even at an exorbitant 15-20 per cent for two-three days, most of these companies are offering funds to banks as certificate of deposits