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Informist, Friday, Dec. 20, 2024

By Vidhushi RajPurohit

MUMBAI – High liquidity deficit in the banking system and reduced appetite from mutual funds led to an uptick in rates of short-term debt instruments on Friday, dealers said. "Rates are a bit elevated, and will likely remain high until the quarter-end," a dealer at a private bank said. 

"Fund houses are facing a cash crunch, so that is also leading to an increase in rates," a fund manager at a mutual fund said. Rates on three-month certificates of deposit issued by banks rose 5 basis points from Thursday to 7.25-7.30%. Similarly, rates on three-month commercial papers issued by manufacturing companies rose by 5 bps to 7.30-7.35%. However, rates on similar-maturity commercial papers issued by non-banking financial companies were unchanged at Thursday's level of 7.50-7.55%.

Despite higher rates, issuances of CD picked up on banks' quarter-end demand for funds, dealers said. Banks raised INR 29.00 billion through CDs on Friday compared with INR 10 billion on Thursday. Axis Bank was the largest issuer of CDs, raising INR 17 billion through a three-month paper at 7.27%. HDFC Bank borrowed INR 10 billion at 7.27% and Bank of Baroda raised INR 2 billion at 7.26%.

Big-ticket borrowing by Small Industries Development Bank of India pushed up the total CP issuance to INR 79.25 billion on Friday from INR 42.45 billion on the previous day. The non-banking lender mopped up INR 50 billion through a three-month paper at 7.30%. The other big borrower was L&T Finance, which raised INR 10 billion at 7.50%, also through a three-month paper. On Thursday, Indian Railway Finance Corp was the largest issuer of CPs, raising INR 20.25 billion through a three-month paper at 7.25%.

Selling pressure from mutual funds kept the volumes in the secondary market steady, dealers said. "Fund houses are in need of cash, so they are selling papers of shorter-tenure to have some liquid funds to manage their ongoing redemptions," a dealer at another private bank said. 

The volume of CDs traded in the secondary market was at INR 100.60 billion, against INR 93.25 billion on Thursday. For CP, the amount was at INR 72.75 billion, against INR 71.60 billion the previous day. 

--Primary market

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

* Small Industries Development Bank of India, Bajaj Housing Finance, L&T Finance, Poonawalla Fincorp, Aditya Birla Money, Kotak Securities, ICICI Securities, Bajaj Financial Securities, Aditya Birla Housing Finance and Motilal Oswal Financial Services raised funds through CP.

--Secondary market

* Bank of Baroda's CD maturing on Dec. 23 was dealt 7 times at a weighted average yield of 6.7646%.
* Tata Steel Ltd's CP maturing on Dec. 23 was dealt five times at a weighted average yield of 6.7639%.

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:

NOTE: Details of the deals have been received from market sources.

End

Edited by Saji George Titus

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