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Informist, Thursday, Aug 22, 2024

By Richard Fargose

MUMBAI – Rates on commercial papers and certificates of deposits reversed their upward move seen on Wednesday due to low issuances of such instruments today, dealers said.

Rates on three-month CPs issued by non-banking finance companies were eased to 7.55-7.60% from 7.60-7.65% on Wednesday, and those on papers of similar maturities issued by manufacturing companies also fell 5 basis points to 7.20-7.25%. Rates on CDs maturing in three months inched lower to 7.15-7.20% today from 7.20-7.25% in the previous session.

"Today, there were fewer issuers in the market as rates are elevated, and mutual funds have excess funds to deploy," said a fund manager with a mid-sized mutual fund. "Although issuances are expected to remain on the higher side, rates are unlikely to rise significantly as we are nearing the rate cut. The US Fed will mostly slash rates in September and the RBI (Reserve Bank of India) may follow suit in October or December," he said.

Earlier this month, a poll by Informist showed three of 22 economists expect rate cuts to start in October. Four see rate cuts starting in October or December. A majority — 15 out of 22 respondents — expect rate cuts from December or later.

So far today, CPs worth 5 bln rupees were issued, compared with 59.50 bln rupees issued on Wednesday and 56.50 bln rupees on Tuesday.

This week, companies tapped the market to refinance maturing paper and raise funds ahead of the festival season.

RBI's August bulletin said that CP issuances increased to 4.86 trln rupees till Jul 31 from Apr 1, surpassing 4.72 trln rupees in the corresponding period last year, driven by non-banking finance companies' higher borrowings in the CP market.

Today, Canara Bank raised 15 bln rupees through three-month CDs at 7.19% and Bank of Baroda raised 5 bln rupees via three-month papers at 7.18%.

"Although we got funds at slightly lower rates than yesterday (Wednesday), rates are elevated due to recent big ticket issuances," said a dealer with a state-owned bank.

On Wednesday, Punjab National Bank raised 85 bln rupees through three-month CDs at 7.20%.

CD issuances have risen as deposit growth is lagging credit growth, which prompted banks to rely on alternative sources of funding.

Since Apr 1 till Aug 20, CD issuances amounted to 3.77 trln rupees, almost 66% higher compared to 2.28-trln-rupee worth of issuances in the corresponding period in 2023-24.

--Primary market

* ICICI Securities, Axis Securities raised funds through CPs.

* Canara Bank and Bank of Baroda raised funds via CDs.

--Secondary market

* Bank of Baroda's CD maturing on Friday was dealt six times at a weighted average yield of 6.4877%.

* National Bank for Agriculture and Rural Development’s CP of maturing Friday was dealt eight times at a weighted average yield of 6.5050%.

At 1700 IST, the following were the volumes, in bln rupees, in the secondary market for short-term debt, as detailed by the Clearing Corp of India's F-TRAC platform:

End

Edited by Tanima Banerjee

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