Companies achieved a historic milestone by raising ₹5.37 trillion through commercial papers during the April-June quarter of FY27, marking the highest quarterly mobilisation in 18 quarters according to Reserve Bank of India (RBI) data. The surge was particularly pronounced in June alone, with issuances worth ₹2.55 trillion, representing the highest monthly level in nearly five years. As per Business Standard, this dramatic increase suggests companies are increasingly seeking short-term funding alternatives to traditional bank loans, with non-banking financial companies (NBFCs) leading the trend as they borrow to fund loan growth and replace maturing debt. The increase was largely driven by significant volume of maturities falling due in June, prompting issuers to refinance their obligations and thereby boosting overall issuance volumes.
Commercial papers function as short-term loans issued directly by companies to investors, serving as IOUs with a maturity period ranging from seven days to one year under RBI regulations. These unsecured instruments require strong credit profiles from issuers, with only entities meeting RBI eligibility criteria permitted to issue them. Companies must obtain credit ratings from RBI-recognised agencies such as Crisil, Icra, CARE, or Fitch Ratings India, with a minimum rating of P-2 from Crisil or equivalent from other agencies. The borrowing cost depends on factors including credit rating, market liquidity, and prevailing interest rates.
Commercial papers are primarily purchased by institutional investors including mutual funds, banks, insurance companies, pension funds, corporate treasuries, and eligible foreign portfolio investors. Retail participation remains limited due to denominations of ₹5 lakh or multiples thereof. Investors typically receive returns through discount pricing, with papers issued at a discount to face value - for example, a ₹100 face value paper might be purchased for ₹97, with the ₹3 difference representing investor returns upon maturity. The borrowing cost structure reflects the issuer's credit quality and prevailing market conditions.
Companies are increasingly using commercial papers to diversify funding sources beyond traditional bank credit, with NBFCs and financial institutions requiring regular access to short-term funds for loan financing. For financially strong companies, commercial papers can serve as a cheaper funding source than short-term bank loans, particularly when liquidity conditions are favorable and investor demand remains strong. The parallel strength in bank lending and CP issuances, according to market experts, suggests that companies are using multiple funding channels to meet expanding credit requirements rather than substituting one source for another. This points to resilient economic activity, with companies maintaining strong access to short-term funding while institutional investors remain willing to lend to highly rated borrowers, reinforcing the growing importance of this funding mechanism.
