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Ahead of the Reserve Bank of India's (RBI) monetary policy, most companies are rushing to short-term debt market to raise funds through commercial papers to lock-in lower rates because after policy announcement they expect rates on these instruments to rise further.

According to the data compiled from market sources, companies raised Rs 37,920 crore through commercial papers (CP) since July 25, with highest being raised on July 27 worth Rs 13,425 crore.

Small Industries Development Bank of India raised Rs 9,450 crore, the highest among all the companies who raised funds in last few days, which was followed by Reliance Jio Infocomm Ltd raising Rs 6,450 crore, Hindustan Petroleum Corp Ltd raising Rs 5,400 crore, and Larsen and Toubro Ltd raising Rs 5,000 crore.

These four companies raised nearly 70 per cent of the total amount raised by the companies through CPs since July 25.

"In general demand for credit has picked up due to pick in economic activities and higher working capital requirements due to increased prices. This could be a reason for the increase in CP issuances," said Pankaj Pathak, Fund Manager-Fixed Income at Quantum Asset Management Company.

In the last few weeks, rates on CPs rose around 30-40 basis points due to falling surplus liquidity from the banking system and in expectation of further rate hike by the RBI.

Rates on CPs issued by non-banking finance companies were in the range of 6.05-6.20 per cent, as against 5.80-6.00 per cent two weeks back. While, rates on papers issued by manufacturing companies were in the range of 5.85-6.05 per cent, as compared to 5.60-5.80 per cent earlier.

"The pricing of all short-term instruments including CP, CD and T-Bills have gone up due to withdrawal of liquidity from the system last week. System liquidity, supply side constraints besides future rate hike expectations are the key drivers for immediate pricing/yield volatility of short-term instruments," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincorp, a Mumbai-based debt advisory firm.

Going forward, market participants expects issuers to raise more funds in the coming days due to increase in credit off-take and robust economic growth. Further, investors may become selective when system liquidity drains or they may demand higher yield.

"We expect credit demand to remain robust in coming quarters as economic growth is getting broad-based," Pathak added.