Commercial paper (CP) issuances have tripled over the past three fiscals, reaching Rs 20 lakh crore last fiscal, and providing significant short-term funding to corporates. At present, issuances outstanding amount to ~Rs 4 lakh crore. However, the market continues to be dominated by issuers rated A1+.
Only a handful of corporates rated A1 currently issue CPs because most rely on banks for their working capital requirements. That’s despite the Reserve Bank of India allowing corporates with even A3 ratings to issue CPs.
Clearly, there is an urgent need to develop the market for A1 rated CPs, which would allow corporates to tap funding at lower interest rates, and also enable investors to diversify their portfolio to yield better returns without a substantial increase in the overall portfolio risk.