The liquidity squeeze that has gripped non-banking finance companies (NBFC) has dealt a blow to India’s short-term debt industry. Commercial paper (CP) sales by financial firms, which often borrow from the markets for onward lending to both companies and individuals, have plunged to about a third of what they used to be.
Financial companies sold Rs 54,113 crore of commercial papers in October, which was 65% down compared with Rs 1,53,165 crore of average monthly sales in July and August, showed data compiled by Edelweiss. CPs are short-term debt instruments, usually with one, two, or threemonth maturities.
“A crisis of confidence has prevented investors from taking new bets on CPs issued by finance companies,” said Ajay Manglunia, executive vice-president at Edelweiss Finance. “The CP market was growing in the past two years as it is a credible source of shortterm funding. (But) the worst may be behind us now, with financial services companies buying back or repaying their liabilities.” Read more