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Informist, Monday, Nov. 25, 2024

By Vidhushi RajPurohit

MUMBAI – Rates on short-term debt instruments rose five basis points on Monday as liquidity surplus in the banking system shrank due to tax outflows, while investment appetite of mutual funds weakened due to redemption pressure typically observed towards the end of the month. The three-month commercial papers issued by manufacturing companies were quoted at 7.25-7.30%, from Friday's 7.20-7.25%. Papers of similar maturity issued by non-banking financial companies were at 7.50-7.55%, an increase of five basis points from 7.45-7.50% previous day's close. For CD, the rates were at 7.15-7.20%, unchanged from the previous close.

"The rates start picking up towards month-end because mutual funds face a cash crunch, because they need to divert their funds towards the redeeming papers," a dealer with a brokerage firm said. In the secondary market, the volumes are up as mutual funds are reportedly selling papers with shorter tenure to garner more funds, dealers said. The volume of CDs traded in the secondary market was at INR 71.25 billion, up from INR 60.20 billion on Friday. For CPs, the amount was at INR 40.30 billion, an increase from INR 22.90 billion the previous day.

"Low liquidity surplus also leads to higher rates because there is an overall compression of funds at month-end," a dealer with a state-owned bank said. Surplus liquidity in the banking system was at INR 282.04 billion on Sunday, a sharp decline from the start of the week's figure of INR 1.69 trillion Nov. 18. The reduction in the surplus liquidity was due to the outflows for goods and services tax payments which were due last week, dealers said.

The certificates of deposit segment had two issuers, tapping the market for INR 30.5 billion. "Overall, the CD market is being supported by the issuances by a few banks which have been raising sums to handle the upcoming maturing papers," a dealer with a state-owned bank said. Union Bank of India borrowed INR 20 billion at 7.17% through a three-month paper, and it issued a one-year paper at 7.55% to raise INR 10 billion. Bank of Baroda borrowed the remaining INR 5 million through a paper maturing in June at 7.40%.

Monday, two non-banking lenders tapped the commercial papers segment to raise INR 8.00 billion, against Friday's INR 10.5 billion. Poonawalla Fincorp raised INR 6 billion from a three-month paper at 7.57%. The remaining INR 2 billion was borrowed by Axis Securities, also from a three-month paper at 7.52%. 

--Primary market

* Union Bank of India and Bank of Baroda raised funds through CD.

* Axis Securities and Poonawalla Fincorp raised funds through CP.

--Secondary market

* Union Bank of India's CD maturing on Dec. 10 was dealt three times at a weighted average yield of 6.8790%.
* Export Import Bank of India' CP maturing on Dec. 3 was dealt four times at a weighted average yield of 6.8586%.

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

NOTE: Details of the deals have been received from market sources.

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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