Working Capital management becomes more prominent; prefer CPs

The nationwide lockdown owing to Coronavirus, which is already in its fourth phase, has affected almost all the industries, in every possible way. Though we have seen some economic activities in the recent past, the things that still worries is the working capital status.

Broadly, working capital is the capital needed by the companies for day to day business. During the lockdown, many industries wished to have all the possible cash with them. Nevertheless, lockdown extension has increased the need for more capital. RBI stepped up and took some important measures in order to ensure access so that, working capital remains stable.

It included deferment of payment of interest for all facilities, including cash credit/overdraft till August 31, 2020, allowing lending institutions to convert the accumulated interest on working capital facilities into a funded interest term loan, which will be repayable during the current financial year.

Many companies took the way of commercial paper (CP) to raise the short-term debt. Though, companies with good rating backup opt for this option, it makes funds available at reduced cost of capital. This is considered as one of the quick ways to raise short funds (one year horizon). BSE listed major names such as ONGC and issued Rs 1,000 crore CPs, followed by NLC India that raised the same amount.