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Informist, Wednesday, Dec. 4, 2024

By Kabir Sharma and Vidhushi RajPurohit

MUMBAI – Expectation of a rate cut and some liquidity easing measures from the Reserve Bank of India's Monetary Policy Committee on Friday weighed on rates in the short-term debt market, leading to a slight rise in issuances, dealers said. Banks borrowed around INR 50.00 billion through certificates of deposit Wednesday, against INR 41.25 billion on Tuesday.

"There is a consensus in the market that Friday's outcome of the MPC meeting will work in favour of easing the rates," a dealer at a state-owned bank said.

Banks issued CDs with one-year maturity, as mutual funds were showing greater appetite in that segment, dealers said. During the day, three banks tapped the CD market. Dealers said mutual funds were trying to lock up their funds at a better rate in case the rates fall further after the MPC outcome. Rates on CDs maturing in a year were quoted at 7.50-7.55% in the secondary market, 5 basis points lower than Tuesday's close of 7.55%-7.60%, dealers said.

Dealers also cited the increase in the surplus liquidity as the reason for the moderation in the rates of CD. "When there is a comfortable surplus, rates tend to go down as banks' need for fresh funding also moderates," a dealer with another state-owned bank said. According to the latest data from the RBI, liquidity was in a surplus of INR 1.00 trillion on Tuesday, against INR 894.51 billion on Monday. Meanwhile, dealers expect the CD issuances to increase in December owing to both the large redemption figure and the quarter-end funding needs. As of now, the redemption amount for the month stands at INR 1.47 trillion for CD.

Union Bank and Canara Bank were the largest CD issuers as they borrowed INR 20 billion each, through paper maturing in three months and one year, respectively. Union Bank got a rate of 7.15% for the three-month paper and Canara Bank raised funds at 7.48% for one year. Punjab National Bank issued a paper worth INR 10 billion in the one-year segment at 7.50%.

Commercial paper issuances rose sharply Wednesday as rates eased due to increased demand from mutual funds, dealers said. "Mutual funds are hungry today, they are eating up papers at lower rates because they want to lock in these rates before MPC," a dealer at a brokerage firm said. On Wednesday, issuances through CPs rose sharply to INR 82.50 billion from INR 36.21 billion on Tuesday.

On Wednesday, the National Bank for Agriculture and Rural Development was the largest issuer, raising INR 30 billion through CP expiring in three months. It was followed by Larsen & Toubro Ltd. raising INR 15 billion through a three-month paper at 7.19%.

The three-month commercial paper issued by manufacturing companies was quoted at 7.17-7.34%, around the same as the previous day. Papers of similar maturity issued by non-banking financial companies were at 7.53-7.58%, dealers said.

--Primary market

* Punjab National Bank, Union Bank and Canara Bank raised funds through CDs.

* Aditya Birla Money, SBI Capital, Poonawala Fincorp, Tata Housing Development, Redington, ICICI Home Finance, Larsen & Toubro, Godrej Consumer Products, National Bank for Agriculture and Rural Development, Axis Securities, Bajaj Financial Securities and Kotak Securities raised funds through CPs.

--Secondary market

* Punjab National Bank's CD maturing on Dec. 5 was dealt 12 times at a weighted average yield of 6.3254%.
* Aditya Birla Finance's CP maturing on Dec. 5 was dealt twice at a weighted average yield of 6.3359%.

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

Edited by Deepshikha Bhardwaj

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