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Informist, Tuesday, Dec. 24, 2024

MUMBAI – The volatile liquidity conditions, coupled with external pressures, have pushed short-term rates higher by 10-15 basis points compared with the early week of December, India Ratings and Research noted in a press release on Tuesday. However, while seasonally tight liquidity in the banking system is a concern, the improved outlook on interest rates is supportive of the overall market rate, the report added.

According to the release, liquidity in the banking system has been a key concern for money markets, with a significant shift from a surplus of INR 250 billion in the first half of December to a deficit of INR 2.43 trillion by Monday. This sharp decline is attributed to the quarterly corporate advance tax payment and the monthly goods and services tax obligations.

Despite the liquidity challenges, lending rates on commercial papers are expected to remain firm, and competition for deposits among banks will likely intensify, the release said. India Ratings anticipates that liquidity will remain in deficit for the remainder of December, though government spending and a 50-bps reduction in the Cash Reserve Ratio are expected to improve liquidity in January.

Meanwhile, in its analysis of the CP market, the rating agency believes the combination of moderate cash flow pressures and favourable interest rates is likely to support healthy CP issuance levels. "Overall, CP issuances by both corporates and NBFCs are likely to remain healthy, though the credit premium for low-rated entities is expected to show an upward bias," said Soumyajit Niyogi, director, Core Analytical Group, India Ratings and Research, in the note.

The rating agency highlighted that the volume and number of CP issuances in December have remained stable. CPs worth INR 1.36 trillion are set to mature in December, INR 0.69 trillion in January, and INR 1.06 trillion in February, according to data from the rating agency as of Dec. 17.

In total, CP maturities for the December-to-February period will reach INR 3.1 trillion. Of this, corporates account for 36%, which is INR 1.13 trillion, non-banks 49% or INR 1.51 trillion, and public finance entities 13%, which is INR 0.39 trillion, of total maturities.

Looking ahead, India Ratings expects CP issuances to remain robust among top-rated entities. Of the 230 issuers whose CPs amounting to INR 3.1 trillion are maturing in the next three months, the top 10 regular market participants account for INR 1.09 trillion, or 35% of the total. The remaining 65% is spread across other issuers, the release said.  End

Reported by Sachi Pandey

Edited by Akul Nishant Akhoury

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