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Informist, Monday, Dec. 23, 2024

By Vidhushi RajPurohit

MUMBAI – Rates on short-term debt instruments inched up Monday owing to reduced investment appetite from mutual funds facing redemption pressure. Additionally, the large liquidity deficit in the banking system pushed up borrowing rates, dealers said. "Fund houses are not actively investing right now as they are facing redemption pressure, and for the remaining days of the month there won't be much demand from them," a dealer at a private bank said. According to central bank data, the liquidity deficit widened Sunday to INR 1.91 trillion, a seven-month high, after goods and services tax outflows.

Rates on three-month certificates of deposit issued by banks rose 5 basis points from Friday to 7.30-7.35%. Similarly, rates on three-month commercial paper issued by manufacturing companies rose by 5 bps to 7.35-7.40%. However, rates on similar-maturity commercial paper issued by non-banking finance companies were unchanged at Friday's level of 7.50-7.55%.

To service their redemptions, mutual funds liquidated some of their holdings of shorter-tenure paper in the secondary market, dealers said. However, the lack of potential buyers capped the trading volume. "Overall, there is a cash crunch for both banks and mutual funds, so buying is not seen much in the market," a dealer at a mutual fund said. The volume of CDs traded in the secondary market was at INR 82.10 billion, down from INR 100.60 billion Friday. For CP, the amount was at INR 48.70 billion, against INR 72.75 billion the previous day.

High borrowing rates led to thin issuances in the primary market as well. Banks raised INR 12 billion through CDs Monday, down from INR 29 billion raised Friday. HDFC Bank was the sole issuer of CDs, issuing two papers with three-month and one-year maturity, respectively. The bank borrowed INR 7 billion at 7.35% through the three-month paper and INR 5 billion through the one-year paper at 7.68%.

Issuances of CP also slumped to INR 5 billion from INR 79.25 billion Friday. LIC Housing Finance was the only issuer, borrowing the amount through a paper that will be redeemed in October at a coupon of 7.75%.

--Primary market

* HDFC Bank raised funds through CDs.

* LIC Housing Finance raised funds through CP.

--Secondary market

* Axis Bank's CD maturing on Dec. 24 was dealt nine times at a weighted average yield of 6.7388%.
* Reliance Industries Ltd's CP maturing on Dec. 24 was dealt four times at a weighted average yield of 6.7720%.

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 Rajeev Pai

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