Entities in rush to raise funds via CP ahead of RBI Policy

MUMBAI: Ahead of the Reserve Bank of India's (RBI) monetary policy, most entities are rushing to short-term debt market to raise funds through Commercial Papers (CP) to lock-in lower rates because after policy announcements they believe rates on these instruments to rise further.

Data compiled from market sources shows that since July 25, companies have raised Rs 37,920 crore through commercial papers (CP), with the largest amount raised on July 27 totaling Rs 13,425 crore.

Small Industries Development Bank of India raised the highest funds in the recent few days (Rs.9,450 crore), followed by Reliance Jio Infocomm Ltd (Rs. 6,450 crore), Hindustan Petroleum Corp (Rs.5,400 crore), and Larsen & Toubro (Rs.5,000 crore).

Nearly 70% of the total sum raised through CPs by the companies since July 25 came from these four companies.
"The general increase in economic activity and higher working capital needs as a result of rising prices have boosted the demand for borrowing. This might be the cause of the rise in CP issuances "Pankaj Pathak, a Fixed Income Fund Manager at Quantum Asset Management Company, said.

Rates on CPs increased by 30 to 40 basis points in recent weeks as a result of declining banking system excess liquidity and anticipation of additional rate increases by the RBI.

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