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Business Standard

L&T Finance to increase commercial paper issuance amid softening rates

With the easing interest rate cycle setting in, L&T Finance Ltd is tweaking its fund-raising strategy by gradually increasing the share of commercial papers (CPs) from seven per cent in March 2025 to up to 12-13 per cent of liabilities in the current financial year. The share of CPs, a short-term money market instrument, for the lending arm of the Larsen and Toubro (L&T) group was seven per cent in the quarter ended December 2024. Sachinn Joshi, chief financial officer (CFO), LT Finance, told Business Standard the Reserve Bank of India (RBI) is creating liquidity in the system and indicated that about Rs 2-2.5 trillion liquidity will be maintained. 'If such conditions remain, then you will see short-term rates actually sliding down. There is an expectation of a further 50 basis points cut in policy repo rates,' he added. L&T Finance Ltd's total liabilities stood at Rs 92,247 crore in March 2025 as against Rs 86,161 crore in December 2024 and Rs 76,541 crore in March 2024. RBI has reduced the policy repo rate by 50 basis points to 6.0 per cent. It also changed the stance of monetary policy from 'neutral' to 'accommodative', signalling intent of better liquidity conditions. Joshi said, for example, the CPs are available at 7-7.5 per cent and three-year bonds are also available at 7.5 per cent. When it is clear that interest rates are going down, the issuer will not take much of long-term funds. They do not want to lock themselves for the long term at higher rates and would opt to take money through short-term instruments, subject to market conditions. Besides the cost of funds, another aspect which has a bearing on the choice of fund-raising instrument is asset-liability management. As the loan book starts growing, there will be a lot of repayment that will come to the company under one year. The inflows will be in various buckets — 30 days, 60 days etc. The company has to also correspondingly ensure there are also outflows as part of asset-liability management. As there are inflows (repayment) under the one-year bucket, the company can take CP money (30 days, 60 days etc) tenure that comes for repayment, the CFO added. Besides commercial papers, the share of bank loans (non-priority sector) in liabilities was 27 per cent and of bank loans (priority sector) was 26 per cent and non-convertible debentures (NCDs) — private placement — was 26 per cent. Its weighted average cost of borrowing grew marginally to 7.84 per cent in March 2025 from 7.83 per cent in December 2024 and 7.82 per cent in March 2024.