Corporate borrowing is increasingly moving toward banks from commercial papers (CPs) and non-convertible debentures (NCDs) amid a surge in open market rates, reported The Economic Times.
According to the report, while bank credit growth is in excess of 17 percent, overall funding that included bonds and CPs climbed 13 percent.
It is becoming evident that borrowers are moving away from CPs and bonds to bank financing with non-food credit climbing more than gross systemic credit, said the report.
“With forecasts of policy rate hikes already at a steep 250 basis points, we worry that this might impede aggregate growth and reduce discretionary consumption,” Punit Bahlani, equity research associate, Nomura, was quoted as saying in the report.
“A sharp decline in commodity prices would also result in less working capital needs. Given the overall macro headwinds, private sector capex is unlikely to show up in a hurry.”
The benchmark 10-year yield is hovering around 7. 3 percent. Interest rates at the upper end for CPs raised to meet working capital needs, where tenors range from a week to a year, have climbed to as high as 13 percent, added the report.
But even in the rising interest rate scenario, a commercial bank's marginal cost-based lending rate (MCLR) for comparable tenor is less than 9 percent, it said.
Bank lending spreads have bounced back with repo rate increase. Lending rates on new loans continue to climb, up 18 basis points in November 2022. Since March 2022, lending rates on new loans are up 123 basis points, ET added.