Commercial Paper Market Is Showing Signs Of Normalcy, Says Bernstein’s Gautam Chhugani

While the quantum of issuance is still low, the market has started clearing commercial papers of non-banking financial companies, after weeks of low liquidity that stemmed from the IL&FS crisis, said Gautam Chhugani, director of India Financials at Bernstein.

"The better NBFCs are getting better rates and the painful pockets—as people had expected—are still rolling over their commercial papers but at slightly higher rates," Chhugani told BloombergQuint, adding that fears of a liquidity crisis have abated. "The commercial paper market is showing signs of coming back to normalcy," he had said in a report yesterday.

Liquidity in India's NBFC sector took a hit over the last two months after infrastructure lender IL&FS defaulted on several payments. The rate of new commercial paper issuances declined from the frantic level of pace witnessed just before the crisis hit. In August 2018, the average fortnightly issuance rate hit a high for the year of Rs 1,50,000 crore, declining to Rs 1,10,000 crore in September and Rs 90,000 crore in October before recovering to Rs 1,10,000 crore in first half of November, according to the Bernstein report. The rate of new issuances declined by 30 percent from the peak August 2018 level, it said.

Here's what Gautam Chhugani had to say about the NBFCs in different sectors:

• Housing finance NBFCs like HDFC Ltd. were still seeing volume in the market. Even smaller firms such as India Infoline, Piramal and IndiaBulls Housing Finance Ltd. have been raising money, even though the yields vary.
• NBFCs in the real estate sector are seeing a painful and gradual consolidation phase. the expectations of a crisis, however, have abated.
• Vehicle finance lenders are seeing "pretty strong demand".

Watch the entire conversation here: