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Rates on commercial papers (CPs), short-term securities issued by companies to raise funds, are expected to remain elevated owing to liquidity fluctuations on the back of tax outflows and increased spending during the festival season.
“India Ratings expects the banking system liquidity to turn volatile in the near term, owing to quarterly tax outflows and monthly GST outflows, followed by the festive season. The withdrawal of incremental cash reserve ratio (ICRR) will drive liquidity to flow in banking system in the festive season, which will be conducive for the money market,” it said in a note.
CP issuances
After rising about 25 bps during the first half, CP rates stabilised at elevated levels in the second half of August following the announcement of I-CRR. CP rates for short-term issuances of 45-90 days, rose by 18 bps compared with July.
Despite this, total issuances increased in August, both in terms of value and number of issuers, largely driven by the need for higher balance sheet liquidity. Going ahead, CP issuances by financial entities are expected to gain further traction in the coming quarters, driven by sustained healthy disbursement growth, the note said.
RBI introduced I-CRR on August 10 to absorb surplus liquidity from the system, generated due to the return of ₹2,000 notes to the banking system. Last week, RBI proposed a phased roll-back of I-CRR to ensure banks have sufficient funds during the festive season to meet the increased credit demand.
The central bank released 25 per cent of banks’ funds on September 9. It will release another 25 per cent on September 23 and the remaining 50 per cent on October 7.
CPs worth ₹1.4-lakh crore are set to mature in September, followed by ₹55,100 crore in October and ₹86,100 crore in November. The aggregate CPs of ₹2.8-lakh crore set to mature, are by 211 issuers, wherein the top 10 issuers account for ₹1.3 lakh crore or 45 per cent of total amount.
CPs issued by NBFCs constitute 41 per cent of the CPs set to mature at ₹1.2-lakh crore, followed by corporates at 34 per cent or ₹93.900 crore. CPs of public finance entities comprise 23 per cent at ₹ 63,400 crore and by public entities for 3 per cent at ₹7,700 crore.
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