Commercial paper rates have jumped about 15 to 20 basis points in about ten days, reducing the amount of funds banks store with and increasing working capital lending from commercial banks.

Commercial papers (CP) are shorter duration debt securities typically issued by corporations with maturities of up to one year. One basis point is 0.01 percentage point.

While bank financing is always more expensive than market rates, lower-rated companies are likely to turn to bank financing rather than floating CPs.

“Companies raising working capital had little choice but to offer higher rates for their CP issues after the last monetary policy,” said Ajay Manglunia, Managing Director and Head of Capital Markets loan from JM Financial. “Mutual funds and banks can only be attracted if they offer rates above RBI windows like VRRR (variable rate reverse repo) or SDF (permanent deposit facility).”

The RBI introduced the SDF in its bi-monthly policy announced on April 8, a platform where banks can park excess funds at 3.75% compared to 3.35% in reverse repo.

Banks parked 1.18 lakh crore in one-day SDF on Thursday compared to 2.35 lakh crore in three-day SDF on April 8, RBI data shows.

“Banks can earn more by placing excess funds in CPs,” said Madan Sabnavis, chief economist at Bank of Baroda. “It all depends on each bank’s asset-liability management. In general, CPs yield more than regulatory windows, but less than banks’ (short-term) lending rates.”

CEAT raised three-month CPs offering 4.14% on the day RBI set out the bi-monthly policy. The tire maker sold these similar-maturity stocks at 4.30% about a week ago. During the same period, Godrej Industries paid about 15 basis points more while selling three-month CPs, which returned 4.20% last Monday in the primary market. All these CPs are rated A1+, a rating considered sufficiently creditworthy to invest.

Treasuries, the shorter-duration sovereign papers that set benchmarks for short-term rates, yielded 9 to 25 basis points more across all maturities in primary sales.