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Informist, Tuesday, May 6, 2025

 

By Vidhushi RajPurohit and Siddhi Chauhan

 

MUMBAI – Despite fewer redemptions in April, borrowing through commercial paper almost doubled on year due to interest from some occasional issuers, market participants said. On the contrary, issuances through certificates of deposits fell to a three-year low due to low credit off take leading to less demand, they added. 

 

In April, fundraising through CPs rose 89% on year to INR 1.59 trillion against the maturity of INR 607.06 billion, a net new issuance of INR 983 billion. However, on a monthly basis, CP issuances fell 14%, largely due to high issuances in March. Typically, fundraising is higher at the end of the quarter due to high demand for funds. In March, borrowing through commercial paper rose to the highest in 39 months to INR 1.85 trillion due to high redemption and tight liquidity. 

 

Generally, non-banking financial companies comprise a major chunk of fundraising through CPs. However, this time, these companies raised just enough funds to roll over maturing issuances. Non-banking financial companies raised INR 443.39 billion against the maturity of INR 441.89 billion. 

 

This month, the borrowing was majorly driven by Bharat Heavy Electricals Ltd., Bharat Petroleum Corp. Ltd., Hindustan Petroleum Corp. Ltd., Indian Oil Corp. Ltd., NTPC Ltd., Reliance Industries Ltd., and Reliance Jio Infocomm Ltd. Funds raised by these companies alone amounted to INR 631.75 billion, data compiled by Informist showed. Without these companies raising funds, the April fund raising would have been INR 956 billion, which would have been an increase of only around 14% from the fund raising a year ago.

 

Among these companies, Reliance Jio Infocomm was the largest issuer, raising INR 174.50 billion mostly through two-month paper. Apart from Reliance Jio, other companies also preferred papers maturing in two months. Out of the total 405 issuances in April, one-fourth were papers maturing in two months.

 

Apart from the above-mentioned companies, Reliance Retail Ventures was one of the largest issuers which raised INR 65 billion, followed by Tata Steel which raised INR 49 billion through the CP market.

 

"Maturity matching before quarter end is more in demand typically. So selling of July papers becomes a little difficult and then you have to sell it at a discount too. So June-July difference could be 5 bps to 10 bps (basis points)," the head of fixed income at a mutual fund said. "...People would want to buy June mid to June end paper for liquid funds so whenever the advanced tax outflow happens they can meet the requirement of liquidity and quarter end obviously. Some corporates and banks want to take out money so to meet the demand supply mismatch typically people want to invest in June." 

 

On Apr. 23, Informist had reported most of these companies had tapped the short-term debt market in April due to a sharp fall in borrowing costs as opposed to other avenues of borrowing.  In April, the rates on the three-month paper issued by non-banking financial companies and three-month paper issued by manufacturing companies fell by 90 basis points and 60 bps, respectively. 

 

Borrowing costs fell as the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points to 6.00% on Apr. 9. Following the cut in repo rate, fundraising through short-term debt market became cheaper than raising funds through a working capital demand loan, market participants said. In April, the spread between rates on three-month CPs issued by non-banking financial companies and three-month Treasury bills narrowed to 95 bps from 123 bps in March.

 

CERTIFICATES OF DEPOSIT

 

In April, issuances of certificates of deposit were lowest since April 2022, as banks' credit offtake is slow at the start of the financial year, market participants said. Most banks fulfilled their rollover requirements towards the end of March. This, coupled with an improvement in liquidity conditions dampened issuers' demand.

 

Total CD issuances in April dropped sharply by 40% on year to INR 197.40 billion, against the maturity of INR 431.85 billion, resulting a net lower borrowing of INR 234 billion. In March, fund raising through CDs had touched a record high INR 2.26 trillion against the maturity of INR 1.64 trillion. This happened as banks' requirement for funds jumped on account of both year-end and quarter-end requirements and the liquidity deficit in the banking system only exacerbated the issue.

 

"In April there was not aggressive lending from banks' side so that is the reason for most banks to not have much requirement for funds," Himanshu Pathak, senior manager, treasury, Federal Bank, said. "They did not have that high maturities also, which also led to low issuances."

 

Out of the total CD borrowings in April, issuances by state-owned banks accounted for INR 152.9 billion, or almost 78% of the total issuance. Among state-owned banks, Bank of Baroda was the largest issuer, raising INR 69.75 billion in April, followed by Indian Bank, which raised INR 37.00 billion. 

 

Meanwhile, borrowing by private sector banks accounted for 20% of the total issuances. Private sector banks borrowed INR 39.5 billion through CDs in April, of which the largest share was by HDFC Bank which borrowed INR 27 billion. The second largest issuer was AU Small Finance Bank, which raised INR 5.50 billion in April.

 

Most banks even refrained from rolling over their maturing papers as dealers cited low funding needs due to ample surplus and slow credit growth. Against a maturity of INR 304.5 billion, state-owned banks' issuances were down by almost 50%. Private sector banks' total issuances in April was also down by 66% compared to the maturity figure of INR 116 billion for April. Moreover, the National Bank for Agriculture and Rural Development did not rollover the single CD of INR 10.75 billion which was due for maturity in April.

 

"Banks issue CD according to funding needs and this month there was enough funds to avoid rolling over also, as there is very good surplus liquidity," a dealer at a state-owned bank said. 

 

On an average, the liquidity in the banking system remained in a surplus of around INR 1.40 trillion in April. This was against an average deficit figure of INR 1.24 trillion in March. The improvement in liquidity was on the back of the Reserve Bank of India's continued infusion of durable liquidity and larger-than-usual month-end spending by the government. Dealers estimated the government's month-end spending to have added INR 2.0 trillion-INR 2.5 trillion to the banking system. Moreover, the RBI bought INR 1.2 trillion worth of government bonds through five open market operation auctions in April, which further fused funds in the banking system. 

 

Following are details of CPs and CDs issued in April, as per data sourced from the Clearing Corp. of India and compiled by Informist. Amounts in INR billion:

 

CP	April 2025	March 2025	On-month%	April 2024	On-year%
Non-banking finance companies	443.39	1,186.84	(-)62.64	512.81	(-)13.54
Manufacturing	1053.77	535.44	96.80	272.08	287.30
Housing Finance	77.85	124.5	(-)37.47	50.31	54.74
REIT	12.75	3.00	325.00	5.5	131.82
Total	1,587.76	1,849.78	(-)14.16	840.7	88.86

 

 

CD	April 2025	March 2025	On-month%	April 2024	On-year%
State-owned banks	152.9	1,327.05	(-)88.48	239.25	(-)36.09
Private banks	39.5	596.65	(-)93.38	89.35	(-)55.79
Others	-	332.45	(-)100.00	-	-
Foreign Banks	5.00	2.75	-	-	-
Total	197.4	2,258.90	(-)91.26	328.6	(-)39.93

 

Edited by Deepshikha Bhardwaj

 

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