Indian companies (India Inc) are actively using the domestic corporate bond market to raise fresh funds. This movement is happening because there is a lot of extra money, or surplus liquidity (cash available with banks for lending), in the banking system right now. Companies want to take advantage of this before the Reserve Bank of India (RBI) decides to increase interest rates to control inflation caused by rising crude oil prices.

Major players like Reliance Industries are planning to raise up to ₹12,500 crore using 5-year bonds. Other companies are also in the race. Larsen & Toubro raised ₹500 crore, while Muthoot Fincorp is looking for ₹700 crore. Even public sector companies like REC are tapping the market. These companies prefer bonds right now because the surplus cash in the system keeps the interest rates relatively stable for them.

The amount of extra cash in the banking system is huge. As of September 8, the excess liquidity was recorded at ₹10.49 lakh crore. This happened because of a specific RBI rule regarding FCNR(B) deposits (foreign currency accounts for NRIs). Banks swapped around $127.23 billion of these foreign deposits with the RBI to get an equivalent amount in Indian Rupees. This flooded the market with rupee liquidity.

For bank officers, this means a shift in how money is being deployed. Currently, much of this excess cash is sitting in the overnight market (where banks lend to each other for one day) at low rates of 4-5%. Because these rates are low, banks are eager to buy corporate bonds to get a higher yield (better return on investment). It is a good time for banks to earn more than what the overnight market offers.

Interest rates for top-rated (AAA) companies are currently around 7.47% for five-year loans. While this is higher than the 7.00% seen six months ago, it is still considered a reasonable rate before the next expected hike. Experts believe that if the liquidity was not this high, the rise in global oil prices would have already pushed these interest rates much higher than they are now.

Bankers and customers should watch the RBI's next moves closely. If the central bank feels that rising oil prices are making goods too expensive, they will tighten the money supply. This would reduce the surplus liquidity and make borrowing expensive for everyone. For now, the window is open for corporates to borrow and for banks to invest their idle cash into high-quality corporate papers.