Indian borrowers seek short-term fixes as bad debts deter banks

Singapore

INDIAN borrowers are grasping at shorter-term fixes for their finances as bank lending grows near the slowest pace in more than 20 years.

Companies being shunned by risk-averse banks are increasingly turning to the nation's commercial paper market, where they can fund their activities with debt maturing between 30 days and one year.

Issuance has boomed in the 12 months through May, jumping 64 per cent to three trillion rupees (S$65 billion).

Commercial paper is tempting firms with interest rates near a five-year low, as banks dawdle passing on Reserve Bank of India (RBI) cuts in borrowing costs. The risk is that a sudden shortage of cash in the money markets could tip weaker borrowers into default. Stressed assets accounted for 11.1 per cent of bank loa…