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Informist, Tuesday, Dec. 17, 2024

By Siddhi Chauhan

MUMBAI – Rates on the short-term papers rose on Tuesday as liquidity in the banking system slipped into deficit, dealers said. The rates on three-month certificates of deposits rose by around 4 basis points from Monday to 7.19-7.25%, while rates on commercial papers rose by 5-10 bps. The rates on three-month commercial papers issued by manufacturing companies rose to 7.25-7.30% on Tuesday from 7.20-7.25% on the previous day, while those of similar maturity papers issued by non-banking financial entities jumped to 7.55-60% from 7.45-7.50%.

"Banks are holding onto their fund needs as the rates have risen because of advance tax outflow," a dealer at a brokerage firm said. "Issuances will pick up again once the rates have cooled down, which is expected to happen because of inflows from the second tranche of CRR (cash reserve ratio) cut." 

At its recent monetary policy review, the Reserve Bank of India announced a cut in the cash reserve ratio of banks' net demand and time liabilities by 50 basis points to 4%, in two tranches. The first cut of 25 basis points came into effect on Saturday and the second cut of 25 basis points will come into effect from the fortnight starting Dec. 28. The RBI estimated the move to increase liquidity in the banking system by INR 1.16 trillion. 

According to RBI data, the liquidity in the banking system slipped into a deficit of INR 1.10 trillion on Monday from a liquidity surplus of INR 335.33 billion on Sunday. The deficit was the highest since Jun. 26. Outflows for advance tax which started from Friday drained around INR 1.25 trillion to 1.75 trillion from the banking system, dealers said.

Meanwhile, fundraising through the short-term debt market fell on Tuesday as issuers waited for rates to cool off, dealers said. On Tuesday, issuances through certificates of deposit fell to INR 29 billion from INR 68 billion on Monday. 

Bank of Baroda was the largest issuer of CDs on Tuesday, raising INR 24 billion for three months at 7.19%, while Canara Bank raised INR 5 billion through CDs maturing in a year at 7.58%. On Monday, Axis Bank was the largest issuer, raising INR 50 billion through a three-month paper at 7.20%. 

According to market participants, CD issuances may pick up soon as banks have to raise funds to roll over the upcoming redemptions. In December, CDs worth INR 1.47 trillion are due for redemption, sharply higher than INR 629.45 billion in November, according to data compiled by Informist.

Borrowing through commercial papers also fell to INR 7.5 billion against INR 48.75 billion on the previous day, due to redemption pressure from mutual funds, dealers said. On Tuesday, the Small Industries Development Bank of India was the only issuer, raising INR 7.5 billion through CP maturing in three months at 7.22%. On Monday, Kotak Securities was the largest issuer, raising INR 21 billion through two three-month papers at coupons of 7.59% and 7.60%.

"Selling pressure from mutual funds due to advance tax outflows has resulted in very little issuances today (Tuesday)," a dealer at a brokerage firm said. "The papers that were being dealt at 7.50% the previous week are now being sold at 7.60%." 
 

--Primary market

* Canara Bank and Bank of Baroda raised funds through CDs.

* Small Industries Development Bank of India raised funds through CPs.

--Secondary market

* State Bank of India's CD maturing on Dec. 18 was dealt five times at a weighted average yield of 6.7903%.
* Small Industries Development Bank of India's CP maturing on Dec. 19 was dealt four times at a weighted average yield of 7.2150%.

The following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, 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 Saji George Titus

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