Bankers and corporate chiefs do not expect any significant impact on the corporate bond market as the downgrading of domestic rating is "symbolic" and has no consequence when the currency is not convertible.
"Theoretically, the cost of funds for corporates will go up with the downgrade, but I don't see any real impact. Since the rupee is not on a full float, there is no international investor in the market. Where is the question of impact on domestic borrowing?" a senior institutional source asked.
Corporates have been borrowing at cheap rates as the system is flush with liquidity and the spread between corporate paper and gilts has shrunk considerably. There may not be any further downwards trend in the cost of borrowing as a fallout of the downgrade, said the finance director of a large company.
"As long as there is enough liquidity in the system and slack credit pick up, banks will continue to pick up corporate papers at a low price. If there is any pressure on the rates, RBI may step in by cutting the repo rate as well as bank rate," said another banker.