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

A realignment in financial institution loans and debt market borrowings amid rising bond yields could also be bumping up the mortgage progress determine for the banking system.

Last Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das stated that financial institution credit score progress has accelerated to 14 per cent year-on-year (y-o-y) as on July 15, 2022 in opposition to 5.4 per cent a 12 months in the past.

However, an evaluation by economists at HDFC Bank of knowledge on credit score and business paper (CP) issuances confirmed that CP issuances similar 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, company bond issuances in Q1FY23 fell 19 per cent to Rs 77,275 crore from Rs 95,303.5 crore in Q1FY22, as per knowledge from the Securities and Exchange Board of India (Sebi).

Since banks are main traders in CPs and bonds, the drop in market issuances accompanied by a bounce in credit score progress implies a rejig in company borrowing methods.

Stripping off the impression of the shift might make mortgage progress look a tad slower.

Bankers confirmed the pattern. Prashant Kumar, managing director and chief govt officer, Yes Bank, stated that greater than the impact of a decrease base, rising yields have pushed company debtors to financial institution 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 stated.

The pattern of deleveraging stability sheets, which was on for the final two years, has additionally began to reverse, thus supporting mortgage progress, Kumar added.

State Bank of India (SBI) Chairman Dinesh Khara stated after the financial institution’s Q1 outcomes that the utilisation of sanctioned loans and dealing capital limits has began to enhance.

“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 stated.

In a report dated August 4, analysts at Jefferies stated that along with larger demand for working capital, financial institution credit score is being lifted by a contraction within the bond market, the place the inventory was down 1.5 per cent between March and June, 2022, even because 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 stated.

Banks can nonetheless retain 11-12 per cent y-o-y progress, led by festive season demand and industries holding giant inventories within the wake of geopolitical uncertainties, the report added.