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Non-banking financial companies (NBFCs) remained the key drivers of activity in the commercial paper market during the past month, even as corporates reduced participation due to higher short-term borrowing costs and sufficient internal liquidity. A report by India Ratings and Research highlighted that NBFCs continued to rely on short-term instruments to meet year-end funding needs, leading to a sharp rise in issuances. In contrast, corporate borrowing declined notably. The report also noted stable trends in certificate of deposit issuances, indicating easing liquidity pressures and a more balanced outlook for bank funding in the coming months.
Non-banking financial companies (NBFCs) continued to dominate the commercial paper (CP) market in the past month, while corporates adopted a cautious approach due to elevated short-term borrowing costs, according to a report by India Ratings and Research. Advertisement
The report indicated that the divergence in borrowing behaviour is expected to continue. NBFCs are likely to remain active in the CP market to meet funding requirements, especially around the financial year-end period, whereas corporates may stay selective due to higher costs and comfortable internal liquidity positions.
March is typically a period of peak funding demand for NBFCs, and this trend held firm despite a rise in yields. Their dependence on short-term borrowing instruments has remained consistent over the years, particularly to manage working capital needs and regulatory requirements at the close of the financial year.
Data from the report showed that CP issuances by NBFCs increased significantly to INR 70,300 crore, compared to INR 45,500 crore in the previous month. On the other hand, corporate CP issuances saw a sharp decline to INR 26,600 crore from INR 40,700 crore during the same period, reflecting a clear pullback by companies amid cost pressures.
The ratings agency observed that the current market environment suggests NBFCs will continue accessing short-term markets to meet quarter-end obligations. It added that corporates are likely to maintain a cautious stance, supported by sufficient internal liquidity buffers and a preference to avoid higher borrowing costs.
In the banking segment, issuances of certificates of deposit (CDs) are expected to move along a more balanced path in the coming months. This is attributed to stabilising deposit conditions and typically lower credit demand at the beginning of a new financial year.
As per available data, total CD issuances stood at around INR 2 lakh crore as of late March. Public sector banks accounted for INR 1.32 lakh crore, while private sector banks contributed INR 67,800 crore. The overall issuance levels remained largely unchanged on a month-on-month basis.
The moderation in CD issuances points to some easing of short-term funding pressures within the banking system. With the transition into the new financial year and expected improvement in liquidity conditions, the intensity of short-term borrowings is likely to soften further.
Source PTI
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