MUMBAI: Liquidity in the broader financial system is improving, with about four-fifths of the outstanding commercial papers (CP) totalling Rs 1.6 lakh crores securing funds during rollovers. One segment still facing liquidity constraints is housing development, where risk aversion is pretty high.
Finance companies have sold Rs 41,256 crore worth of CPs until December 12, compared with about Rs 1.27 lakh crore in November.
“We have resumed routine subscriptions to CPs,” said R. Sivakumar, Head, Fixed Income, Axis Mutual Fund. “There are no worries about the NBFC crisis as there are no signs of defaults from any such company. Rollovers are back in the market, and fund houses are not hesitating.”
Separately, data compiled by Edelweiss showed that in December, about Rs 1.11 lakh crore worth of CPs sold by NBFCs are maturing. In November, these companies settled Rs 1.52 lakh crore of CPs that came up for maturities.
CPs are short-term debt instruments companies use mostly to raise working capital.
November was crucial as investors turned apprehensive about non-banking finance companies, which were battling a mismatch between short-term liabilities and long-term assets. Over the two-month period, many NBFCs have narrowed the gap by selling fewer CPs. Instead, they switched to bonds.
“The perceived NBFC crisis has diluted significantly with rollovers happening at a normal pace,” said Ajay Manglunia, executive vice president, Edelweiss Finance. “CP rates, too, have normalised with no wild swings. In fact, rates have fallen 10-15 basis points the past two weeks following a change in the overall rate scenario.”
“Credit flows are likely to improve in the NBFC sector amid expected liquidity easing measures,” he said.
Speculation is rife that the new central bank governor may ease stricter norms on 11 state-owned banks that are under prompt corrective action, an austerity measure put in place by the regulator that crimps their ability to lend.
“If PCA banks start lending, credit flows to non-banking finance companies will rise, normalising the situation,” said a senior executive at a large NBFC.