{"id":27913,"date":"2017-12-07T16:52:43","date_gmt":"2017-12-07T16:52:43","guid":{"rendered":"http:\/\/www.bnreport.com\/will-companies-pay-more-for-short-term-borrowing\/"},"modified":"2017-12-07T16:52:43","modified_gmt":"2017-12-07T16:52:43","slug":"will-companies-pay-more-for-short-term-borrowing","status":"publish","type":"post","link":"https:\/\/www.bnreport.com\/en\/will-companies-pay-more-for-short-term-borrowing\/","title":{"rendered":"Will companies pay more for short term borrowing?"},"content":{"rendered":"

MUMBAI: Indian companies may now have to pay more for working capital and other short-term loans, with the central bank\u2019s neutral policy stance and cautionary tone on consumer prices pointing to higher financing costs. <\/p>\n

Wednesday\u2019s monetary policy<\/a> announcement has put the spotlight firmly on the central bank\u2019s handling of short-term liquidity<\/a> needs, especially with more than 30 billion dollars in forex<\/a> forwards lying in the books of the Reserve Bank of India<\/a> (RBI). <\/p>\n

\u201cThe RBI\u2019s liquidity stance points to higher rates over a period of time,\u201d said Ajay<\/a> Manglunia, executive vice-president at Edelweiss<\/a> Finance. \u201cMarkets were going through uncertainties as there was no clarity on liquidity. RBI\u2019s latest policy statement has made it amply clear.\u201d <\/p>\n

On an average, rates have gone up about 15-30 basis points across commercial paper issuances in the past one month. Companies raise short-term money (maturities of less than a year) by selling commercial papers bought largely by mutual funds<\/a>. <\/p>\n

\u201cShort-term rates are susceptible to changes in liquidity conditions or expectations on monetary policy and both have had an impacted in recent past,\u201d said Soumyajit Niyogi, associate director, India<\/a> Ratings. \u201cRBI should ensure easy and cheaper financing options to SMEs to iron out the GST<\/a> transition. Intermediation cost shouldn\u2019t be too high for those entities, given their limited access to capital markets.\u201d <\/p>\n

A day after the RBI\u2019s bi-monthly policy announcement, L&T Finance, Tata Housing Development, ONGC<\/a> Mangalore Petrochemicals, and Chennai Petroleum<\/a> Corp. have collectively sold about Rs 2,000 crore CPs across maturities, dealers said. The rates were about 10-20 basis points higher than levels seen a month ago. <\/p>\n

"Companies may have to fork out extra cost through their CP borrowings," said Ashish Ghiya, MD, Derivium Tradition India. \u201cThe cost has already gone up in the past two months across various issuances due to tightening liquidity. Rates are likely to be higher, with expected erosion in surplus liquidity. CP issuances, too, may rise, with more coroporates preferring the capital market<\/a> to working capital loans from banks." <\/p>\n

By the first half of the next year, liquidity in India\u2019s financial system would come to a level that is consistent with the central bank\u2019s stated neutral stance. <\/p>\n

Given the trends in currency in circulation, it is expected that system liquidity may reach neutrality in the first half of 2018, RBI deputy governor Viral Acharya said Wednesday after the policy announcement. <\/p>\n

\u201cThe RBI will continue to manage the evolving liquidity conditions through a mix of variable rate repo and reverse repo operations of various maturities. These are for handling short-term liquidity.\u201d <\/p>\n

<\/a><\/strong> <\/a><\/p>\n

Original Article<\/a><\/p>\n

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