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Informist, Monday, Dec. 2, 2024

By Siddhi Chauhan

MUMBAI – Increasing odds of a rate cut at the Reserve Bank of India's upcoming monetary policy meeting brought down borrowing costs in the short-term debt market, prompting more banks to tap the market through certificates of deposit on Monday, dealers said. Banks borrowed around INR 75 billion through CDs against INR 34.55 billion on Friday. 

Rate cut expectations firmed as data released Friday showed India's Jul-Sept GDP growth fell sharply below market expectations. The domestic GDP print fell to a seven-quarter low of 5.4% in the quarter ended September due to a slump in the growth of industrial activity. 

"After the GDP data for the September quarter, the market has factored in the possibility of a rate cut in December," a dealer at a state-owned bank said. "After the release of that data, the rates have started to come down, which has prompted many banks to raise funds at lower rates." 

In anticipation of a cut in rates by the RBI at its policy meeting that ends Friday, rates on the three-month CD are expected to fall in the coming days, dealers said. Rates on CDs maturing in three months were last quoted 6.18%-6.23%, same level as Friday's close, but had fallen earlier in the day, dealers said. 

HDFC Bank was the largest CD issuer as it borrowed INR 30 billion rupees through paper maturing in one year at a rate of 7.54%. It was followed by Union Bank, which issued papers worth INR 20 billion cumulatively, both maturing in one year at 7.53% and 7.54% respectively. Other banks which tapped the short-term debt market were Canara Bank and Federal Bank. 

Issuances through commercial paper also rose sharply as non-banking finance companies and manufacturing companies tapped the short-term debt market to meet working capital requirements, dealers said. On Monday, issuances through CPs rose sharply to INR 162 billion against just INR 6 billion on Friday. 

CP issuances also rose as mutual funds regained their appetite for fresh investments once the cyclical redemption pressure subsided after month-end, dealers said. "CP issuances have surely risen from the previous day, many NBFCs have tapped the market as they have upcoming maturities to meet," a dealer at a brokerage firm said. "Mutual funds are also interested in investing now because redemption pressures have subsided." 

Out of the above-mentioned amount, Export-Import Bank of India was the largest issuer, raising INR 40 billion through two papers maturing in three and six months at a rate of 7.16% and 7.45%, respectively. It was followed by Small Industries Development Bank of India raising INR 30 billion through one-year paper at a rate of 7.56%. .

The three-month commercial paper issued by manufacturing companies was quoted at 7.25-7.30%, the same as the previous day. Papers of similar maturity issued by non-banking financial companies were at 7.45-7.50%. 

--Primary market

* Canara Bank, Union Bank of India and HDFC Bank and Federal Bank raised funds through CD.

* Export Import Bank of India, National Bank for Agriculture and Rural Development, Godrej Consumer Product, Reliance Retail Ventures, CanFin Homes Ltd, Aditya Birla Housing Finance, Godrej Industries, Aditya Birla Finance, HDFC Securities, Kotak Securties, ICICI Securities, Bajaj Finance Securities, Aseem Infrastructure Industries, Pilani Investment and Industries Corp, Motilal Oswal Financial Services, Hero Fincorp and Small Industries Development Bank of India raised funds through CP.

--Secondary market

* HDFC Bank's CD maturing on Dec. 6 was dealt twice at a weighted average yield of 6.8580%.
* National Bank for Agriculture and Rural Development's CP maturing on Dec. 3 was dealt seven times at a weighted average yield of 6.4377%.

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:

End

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

Edited by Akul Nishant Akhoury

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