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Find out why short-term debt is cheaper for PSUs and top private companies

Updated : November 20, 2019 06:10 AM IST

Slowly but surely, the cost of raising money is falling but only for PSU companies and top private sector firms.

State Bank of India treasurer Hare Krishna Jena told CNBC-TV18 that PSU companies are able to raise debt for 2-3 months via commercial paper at 4.9 percent, which is the reverse repo rate, while top notch private companies are raising short term money at the repo rate, that is 5.15 percent.

What is the reverse repo? It is the lowest available rate in the system. When the banks have nowhere to put their money on an overnight basis they give it to the Reserve Bank of India (RBI) and in exchange they get about 4.9 percent, the reverse repo rate. So companies are able to raise money at 4.9 percent, but that is usually short-term money and only for PSUs.

If you are a private sector firm with AAA like Reliance Industries, then you would be getting like maybe 5 percent, close to the repo rate which is 5.15 percent. But this facility is available only to the top-notch companies.

The SBI treasurer was very clear that the number of companies that can access the debt market is not increasing.
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