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Informist, Tuesday, Dec. 3, 2024

By Kabir Sharma

MUMBAI – The lack of clarity around the Reserve Bank of India's actions on liquidity at its monetary policy meeting, culminating on Friday, led to a fall in issuances in the short-term debt market on Tuesday, with the rates remaining around the same levels as on Monday, dealers said. "The rates are around the same level as yesterday, the expectation of a rate cut or announcement of some liquidity improvement measure at the MPC are keeping them in check," a dealer at a state-owned bank said. Banks borrowed around INR 41.25 billion through certificate of deposits against INR 75 billion on Monday. 

Expectation of some respite from the RBI increased after the release of India's Jul-Sept GDP data on Friday. India's growth in the Jul-Sept quarter fell sharply below market expectations and that of the RBI itself. The GDP print fell to a seven-quarter low of 5.4% due to a slump in the growth of industrial activity. Market participants now expect the RBI to intervene through various liquidity measures and a small section is also betting on a rate cut this Friday.

"They can do a CRR (cash reserve ratio) cut, they can announce OMOs (open market operations), or they might even go for a rate cut, but something needs to be done," a dealer at a brokerage firm said. The rates are expected to remain steady around the current levels at least until the announcement of the policy on Friday, dealers said. Rates on CDs maturing in a year were last quoted at 7.53%-7.54%, the same level as Monday's close, dealers said. 

Bank of Baroda was the largest CD issuer as it borrowed INR 17 billion through a paper maturing in three months at a rate of 7.17%. It was followed by Union Bank, which issued a paper worth INR 14 billion in the one-year segment at 7.53%. Dealers said banks are preferring six-month and one-year paper over the three-month paper because they want to avoid having to roll over their borrowings in March when mutual funds typically face redemption pressure.

Commercial paper issuances fell sharply Tuesday as market participants were cautious ahead of the MPC outcome, dealers said. Some redemption pressure also weighed on the volumes in the CP market, they said. On Tuesday, issuances through CPs fell sharply to INR 36.21 billion from INR 162 billion on Monday.

On Tuesday, Reliance Jio Infocomm was the largest issuer, raising INR 18 billion through CP expiring in three months. It was followed by ICICI Securities raising INR 11 billion through a three-month paper at 7.55%.

The three-month commercial paper issued by manufacturing companies was quoted at 7.18-7.27%, the same as the previous day. Papers of similar maturity issued by non-banking financial companies were at 7.55-7.57%. 

--Primary market

* Indian Bank, Union Bank, HDFC Bank and Bank of Baroda raised funds through CDs.

* Reliance Jio, Bajaj Financial Securities, ICICI Securities, Godrej Properties, and Godrej Industries raised funds through CPs.

--Secondary market

* Union Bank's CD maturing on Dec. 10 was dealt 12 times at a weighted average yield of 6.9024%.
* Mahindra and Mahindra Financial Services' CP maturing on Dec. 4 was dealt twice times at a weighted average yield of 6.3658%.

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 Ashish Shirke

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