 "Non-bank financing for companies zooms")
Fund-raising through bonds and commercial paper (CP) showed a sharp rise in the first half of the current financial year (April-September), with lenders with excess liquidity without adequate credit pick-up giving money to companies by subscribing to their CP and debentures.
The flow to the commercial sector from non-banking sources more than doubled to Rs 101,000 crore during the first half of FY15 against Rs 46,600 crore in the year-ago period, Reserve Bank of India data showed.
The situation was opposite in the case of companies accessing credit lines from banks. There was a sharp fall in adjusted non-bank food credit in the same period. Banks disbursed Rs 144,100 crore during April-September 2014, compared with Rs 325,100 crore in the same period a year ago.
According to bankers and corporate treasury officials, many companies preferred to use CP over cash credit, as it came at a lower rate than the lending rate for loans. The surge in the liquidity pushed money and bond market rates down.
RBI said the flow of financial resources to the commercial sector was lower this year compared to last year, mirroring the slowing of bank credit growth.
The corporate bond market recorded a pick-up in activity during the second quarter with an increase in offerings of public issues and rights issues, partly reflecting tightening bank credit conditions.
Debt mobilisation through public issues and private placements has been significantly higher during July-August 2014 than that in the preceding quarter.
The foreign capital flows have led to an increase in liquidity into domestic markets. It has also exerted some pressure on rates to move down.
Sanjeev Lall, head (institutional banking group) at DBS Bank, said besides providing an avenue for earning returns than keeping funds idle, the investment in short-term paper also helps banks to keep its books liquid.
There may be a negative carry as returns from CP might be lower than the base rate for loans. However, besides earning on investments banks also have to worry about when money could be available. CP is tradable instrument from which a bank could exit if it needs funds.
The flow to the commercial sector from non-banking sources more than doubled to Rs 101,000 crore during the first half of FY15 against Rs 46,600 crore in the year-ago period, Reserve Bank of India data showed.
The situation was opposite in the case of companies accessing credit lines from banks. There was a sharp fall in adjusted non-bank food credit in the same period. Banks disbursed Rs 144,100 crore during April-September 2014, compared with Rs 325,100 crore in the same period a year ago.
According to bankers and corporate treasury officials, many companies preferred to use CP over cash credit, as it came at a lower rate than the lending rate for loans. The surge in the liquidity pushed money and bond market rates down.
RBI said the flow of financial resources to the commercial sector was lower this year compared to last year, mirroring the slowing of bank credit growth.
The corporate bond market recorded a pick-up in activity during the second quarter with an increase in offerings of public issues and rights issues, partly reflecting tightening bank credit conditions.
Debt mobilisation through public issues and private placements has been significantly higher during July-August 2014 than that in the preceding quarter.
The foreign capital flows have led to an increase in liquidity into domestic markets. It has also exerted some pressure on rates to move down.
Sanjeev Lall, head (institutional banking group) at DBS Bank, said besides providing an avenue for earning returns than keeping funds idle, the investment in short-term paper also helps banks to keep its books liquid.
There may be a negative carry as returns from CP might be lower than the base rate for loans. However, besides earning on investments banks also have to worry about when money could be available. CP is tradable instrument from which a bank could exit if it needs funds.