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Informist, Tuesday, Dec. 10, 2024

 

By Siddhi Chauhan and Vidhushi RajPurohit

 

MUMBAI – Ahead of heavy debt maturities in December, banks' borrowing through certificates of deposit rose sharply in November, with issuances up 51.3% on month, dealers said. The liquidity deficit in the last week of the month also resulted in increased demand for funds from banks, they said. 

 

Compared to a year ago, borrowing through CDs rose 22% to INR 922.60 billion in November. The issuance amount was much more than the CD redemptions worth INR 629.45 billion that were lined up last month. State-owned banks had the biggest share in the month's issuances, contributing INR 564.85 billion, or 61.2% of the total issuances. Private banks issued CDs worth INR 335 billion last month. The remaining INR 22.75 billion worth of issuances were by Small Industries Development Bank of India, a non-banking financial entity.  

 

"Issuances in November were up for CD because some banks tried to borrow in advance against the papers due for redemption in December. There is a large redemption figure in December along with quarter-end needs, too," Himanshu Pathak, senior manager at the treasury desk with Federal Bank, said. "So banks tried to meet a large chunk of the upcoming maturities to avoid raising the papers in December when the rates would have been higher."

 

According to data compiled by Informist, CDs worth INR 1.47 trillion are set to mature in December. High upcoming maturities and fear of higher borrowing costs in December prompted banks to borrow in advance, market participants said. In November, rates on the three-month CD were at 7.18-7.23%, up 3 basis points from 7.15%-7.20% in October. Banks feared that CD rates would rise as corporate advance tax outflows typically tighten liquidity conditions in December.

 

Borrowing through CDs also rose in the latter half of November as banking system liquidity slipped into deficit due to goods and services tax outflows and heavy dollar-selling intervention by the Reserve Bank of India in the foreign exchange market.

 

In the last week of the month, the deficit widened to as high as INR 364.18 billion. During the first half of November, the liquidity surplus rose to as high as INR 2.84 trillion. In just four days of liquidity deficit (Nov. 25-28), banks raised INR 298.35 billion through CDs, while INR 624.5 billion was raised over a period of 17 days starting from Nov. 4.

 

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Liquidity deficit in the banking system and steady demand from non-banking financial entities towards the end of the month pushed up rates on CP by 5 basis points. Before this, these had remained unchanged for the majority of the month. For manufacturing entities, the rates for three-month CP were at 7.25-7.30% near the end of November, against 7.20-7.25% quoted at the start. Papers of similar maturity issued by non-banking financial entities also rose to 7.50-7.55% from 7.45-7.50%. 

 

"The rates were largely moderate for the entire month due to the high surplus liquidity in the (banking) system, and it was only when the liquidity tightened that the rates rose," a dealer with a mid-size brokerage firm said. "Besides that, if you see the data, the borrowing was also mostly led by non-banking entities, while other issuers borrowed mostly on their rollover needs, so the hike was not that sharp, and it cooled down soon."  

 

Total CP issued in November were at INR 1.13 trillion, up 2.08% on month and 11.80% on year. Issuances from non-banking financial entities were up 40% on-month at INR 642.66 billion. For manufacturing and other housing finance entities, the amount borrowed was down 24.41% and 30.14% on month, respectively.

 

High cost of borrowing from banks led non-banking financial entities to meet their funding needs though issuances of commercial paper. "CP (issuance) has (been) led by NBFCs' borrowing needs as, for them, borrowing through banks has become expensive now," Sumantra Banerjee, senior associate with NVS Brokerage Firm, said. 

 

Borrowing from banks has become more expensive for NBFCs due to the Reserve Bank of India's regulatory mandate of higher risk weights on banks' lending to these companies. Moreover, shrinking margins have forced banks to raise the marginal cost of funds-based lending rates as they are required to offer higher interest rates on deposits to garner more funds. 

 

The country’s largest lender, State Bank of India, raised its MCLR by 5 basis points from Nov. 22, after upping it by 10 bps across tenures from Aug. 22. "But overall, there was not a major hike in issuances, as such, as it was balanced out by moderate demand from other entities. Meanwhile, manufacturing companies and housing finance companies trimmed down their borrowing, having actively issued paper in previous months," Banerjee added. 

 

Following are details of CP and CDs issued in November, as per data sourced from the Clearing Corp. of India and compiled by Informist. Amounts in INR billion:
 

 

CD	Nov. 2024	Oct. 2024	on month %	Nov. 2023	on-year %
State-owned banks	564.85	399.4	41.42	444.24	27.15
Private banks	335	210.55	59.11	308.10	8.73
Other	22.75	0	0	6.50	250.00
Total	922.60	609.95	51.26	758.84	21.58
CP	Nov. 2024	Oct. 2024	on month %	Nov. 2023	on-year%
Housing	51.00	73.00	-30.14	68.25	-25.27
NBFC	642.66	459.03	40.00	550.55	16.73
Mfg	433.31	573.25	-24.41	390.36	11.00
Other	1.25	-	-	-	-
Total	1,128.22	1,105.28	2.08	1,009.16	11.80

 

End

 

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

 

Edited by Namrata Rao

 

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