After a lull in the commercial paper market, Power Finance Corporation (PFC) this week entered the market to raise Rs 3000 crore either through commercial papers or corporate bonds for 10 years with a coupon rate of 8.65 %. The Delhi-based manufacturing company Amtek Auto raised Rs 750 crore for 5 year at 10.5 %.
Ashutosh Khajuria, president treasury and credit at Federal Bank said, "companies are still with the debt market to take advantage of the softer rates. Bank credit growth has started to pick up with the incremental growth in November and December 2014 being higher than the same time of last year. There has been a small pick-up for working capital requirements from infrastructure companies."
Companies have been staying away from tapping bank credit available at over 10 %. Instead they preferred the corporate bond market or the non-convertible debenture (NCD) route which are less expensive, bankers said.. Banks, on the otherhand are also investing into the commercial paper as they have an investible surplus.
A senior official with a public sector bank said, "the corporate bond market is gaining ground as bank credit is still highly priced. For shorter term money of about two months companies are coming to the CP market and for longer term fund requirements companies are preferring the NCD market."
The spread between corporate bond and government security yields have narrowed down in the last six months. Rate cut expectation has resulted in a fall on both the corporate and the government bond yields. The yields on the 10-year government bonds with a coupon rate of 8.40% is at 7.94 % about 106 basis points down since April, while the yield on a AAA- rated corporate bond is around 8.54 %, also down 106 points.
According to RBI data non-food credit which includes loans given to companies and individuals grew at a muted pace of 10.93 % for the fortnight ended December 14 with the outstanding credit in the banking system totalling Rs 61, 98, 242 crore.
Meanwhile, the growth in deposits came in at 10.63% yoy, taking total deposits to Rs 82,92,975 crore. Credit growth, which had plummeted to a decade low of 9.8% in the fortnight ended September 5, has picked up in the subsequent fortnights thereafter. With few takers for project loans, however, much of the disbursements relate to working capital.
Excluding HDFC Bank which has a the base rate at 9.8 % and State Bank of India at 10 %, most banks have their base rates at over 10.25 % thereby making bank credit very expensive. This has forced many companies to tap other sources for cheaper funding. For the moment, commercial paper (CP) and the NCD markets are cheaper alternatives for working capital and other needs.
According to RBI data for the fortnight ended November 30, the number of corporate bonds issued by companies were at Rs 47,700 crore higher than the Rs 36340 crore worth of corporate bonds issued in the previous week.
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