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Bankers are apprehensive that with cheap funds available intermediaries may go for arbitration with riskier investments such as stressed assets.
Bankers have expressed the fear that easy money available in the money market via commercial papers may find its way to riskier assets, the Times of India has reported. According to the report, with surplus liquidity in the money market, there is heightened issuance of commercial papers. During the first half of this fiscal year, the average monthly outstanding was over Rs 4 lakh crore. Some bankers, said that the report has expressed concerns about the nature of issuers of commercial papers.
NBFCs share in commercial paper
Mutual funds, of late, have been investing majorly in commercial papers, the report said, adding that the share of non-banking financial companies (NBFCs) in total commercial paper issuances increased to 43.2% in the first six months of 2021-22. At the same time, the share of corporates decreased to 46.2% from 64.9% in the same period last year.
Arbitration opportunity
Bankers are apprehensive that with cheap funds available intermediaries may go for arbitration with riskier investments such as stressed assets. Those dealing with stressed assets do not borrow directly from money markets, they can raise money through intermediaries who have access.
The RBI’s monetary policy report noted that commercial paper issuances increased to Rs 10.1 lakh crore during the first six months of the current financial year from Rs 7.9 lakh crore in the same period last year.
While rates on an average were 46 basis points higher than the repo rate, yields have risen on higher supply by NBFCs, partly to mobilise resources for investment in IPOs, but moderated subsequently, the report said.
Top-rated borrowers can raise funds at close to the reverse repo rate of 3.35. However, yield-chasing fund managers make small investments in high-yield papers and there have been outlier issuers at 12-13% as well.
Published: October 16, 2021, 14:04 IST