ANZ Investment Bank research head Anidyo Chaterjee said, ``Rising non-performing assets, pressure on spreads of banks and institutions, credit downgrades... Public sector units (PSUs) are expected to raise about Rs 7,200 crore by end-March '99. All point to a perk-up in rates," he added.

A capital punishment of sorts is in the offing for those seeking to access the corporate bond market. Figures can be misleading. In the second quarter of 1998-99, the corporate bond market witnessed deals worth Rs 7,046 crore, an increase of almost 50 per cent over the first quarter figure of Rs 4,678.25 crore.

But financial institutions were the main borrowers, mopping up Rs 3,954 crore with state-run ones at Rs 2,461 crore.

The share of the private sector stood at Rs 631 crore, comprising mostly the top rated ones. The highest amount raised by any single issue was by the Industrial Development Bank ofIndia (IDBI) at around Rs 1,400 crore in July.

Among corporates, HDFC collected close to Rs 150 crore followed by Telco at Rs 138 crore.

Among the state run ones, the Maharashtra Jeevan Pradhikaran topped with nearly Rs 450 crore.

The downgrading of the country's sovereign rating to speculative grade by both Moody's and Standard & Poor's during the current fiscal has made external borrowings by corporates costlier. Add on, volatility in the rupee-dollar rates. These two factors together have put further pressure on interest rates in the domestic market. ICICI recently offered 14.25 per cent annualised on its seven-year paper. The coupon on the institution's previous offering was pegged 50 basis points lower.

"They (coupons) could rise, but not in any significant manner," ABN Amro Securities (India) managing director Vishnu Deuskar said while Credence research analyst Sharad Ahuja is of the view that "exposure norms announced in the Reserve Bank's October policy will also affect pricing. Banks willnow have a 100 per cent exposure to an institution in cases where the latter has guaranteed a corporate borrowing. Institutional exposure to corporates will be 50 per cent. Most banks are near their exposure ceilings to FIs." A recent deal reflects the situation. Whirlpool raised Rs 50 crore at 13.75 per cent half-yearly 13.75 per cent through a six-year bond backed by Stanchart (London) guarantee.

TimesBank executive vice-president (treasury) Sudhir Joshi said: "Issues these days are being priced very aggressively and the general feeling is that interest rates on corporate bonds will continue to go up on account of this."

Telco's Rs 50-crore (greenshoe: Rs 25 crore) 364-day debentures at 13 per cent are just 20 basis points over ICICI one-year on-tap at 12.80 per cent. HSBC treasury marketing head Amit Gupta is more categorical: "Pricing is increasingly going to reflect the underlying risk. Only top quality borrowers are going to make it, and liquidity in the system does not mean that a particular issuewill go through. Innovative instruments will hit the markets more. It is happening all over the world and we are not going to be an exception."

The first and second quarter of the current fiscal reflected this: Call-linked bonds by GE Capital, L&T and Reliance received a huge response as they offered investors a hedge against interest rate risk. GE Caps ``Strips'' is another case in point.