Commercial paper, corporate bond issuances fall: ‘Bonds & loans realignment bumps up credit growth’

Last Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das said that bank credit growth has accelerated to 14 per cent year-on-year (y-o-y) as on July 15, 2022 against 5.4 per cent a year ago.

However, an analysis by economists at HDFC Bank of data on credit and commercial paper (CP) issuances showed that CP issuances same have fallen 64 per cent y-o-y to Rs 94,599 crore in July 2022 from Rs 2.66 trillion in July 2021.

Similarly, corporate bond issuances in Q1FY23 fell 19 per cent to Rs 77,275 crore from Rs 95,303.5 crore in Q1FY22, as per data from the Securities and Exchange Board of India (Sebi).

Since banks are major investors in CPs and bonds, the drop in market issuances accompanied by a jump in credit growth implies a rejig in corporate borrowing strategies.

Stripping off the impact of the shift could make loan growth look a tad slower.

Bankers confirmed the trend. Prashant Kumar, managing director and chief executive officer, Yes Bank, said that more than the effect of a lower base, rising yields have driven corporate borrowers to bank loans. “Last year, corporates were able to raise very cheap funds overseas or from the local markets. Both have become very costly now. So they have to come back to banks,” he said.

The trend of deleveraging balance sheets, which was on for the last two years, has also started to reverse, thus supporting loan growth, Kumar added.

State Bank of India (SBI) Chairman Dinesh Khara said after the bank’s Q1 results that the utilisation of sanctioned loans and working capital limits has started to improve.

“Capacity utilisation in the economy is at about 75 per cent, and we have got a situation where we expect more corporates to be looking at us for availing credit facilities as compared to options available in the past for raising funds from the securities market,” he said.

In a report dated August 4, analysts at Jefferies said that in addition to higher demand for working capital, bank credit is being lifted by a contraction in the bond market, where the stock was down 1.5 per cent between March and June, 2022, even as it rose 9 per cent y-o-y.

“Bank credit growth may have peaked here as commodity prices have retraced — metals/oil/wheat down 20-30% from peak and as yields stabilise, corporate bonds will also make a come-back,” Jefferies said.

Banks can still retain 11-12 per cent y-o-y growth, led by festive season demand and industries holding large inventories in the wake of geopolitical uncertainties, the report added.