Reflecting poor credit pick-up in banks, fund raising from the market through issuance of commercial papers showed 58 per cent increase on an average fortnightly basis. Capital raising from banks continued to remain expensive for corporate borrowers.

Commercial paper is a money-market security issued/sold by large corporations to obtain funds to meet short-term debt requirements.

“The average fortnightly issuance of commercial papers (CPs) increased by 58 per cent to Rs 47,900 crore during 2014-15, reflecting substitution of short-term bank credit by market based funding on account of the cost effectiveness of CPs for raising funds on the back of significant easing of yields on corporate bonds,” RBI’s annual report said.

Consequently, the outstanding amount of CPs stood higher at Rs 1.93 lakh crore at end-March 2015 as compared to Rs 1.06 lakh crore at end-March 2014.

The paper’s popularity is also spurring companies under financial pressure to seek short-term access to capital markets.

The growth in credit offtake of the banks dropped to a multi-year low of 8.5 per cent year-on-year in June 2015 as against 13.4 per cent in June 2014 as better rated corporate entities moved to less costly capital market sources (bonds and commercial paper).

Overall systemic credit growth (including corporate bonds and commercial paper) was 11.9 per cent as in June 2015 versus 12.9 per cent as in June 2014.

Reflecting ease in liquidity conditions during the year and overall downward movement in the interest rate cycle, the weighted average discount rate (WADR) for CPs decreased to 9.26 per cent at end-March 2015 from 9.92 per cent at end-March 2014, RBI said.

The declining trend has continued during 2015-16 so far with WADR standing at 7.97 per cent at end-July 2015, it added.

ICRA expects interest rate differences between capital market sources and bank loans to persist for some time and to have a negative impact on banks’ credit growth.

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