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Informist, Tuesday, Jan. 7, 2025

By Vidhushi RajPurohit

MUMBAI - Certificates of deposit issued by banks rose to INR 100.00 billion Tuesday as banks flocked to the short-term debt market to raise funds amidst continued liquidity deficit, dealers said. While the Reserve Bank of India cut the Cash Reserve Ratio by 50 basis points in December in two steps to the pre-pandemic level of 4.00%, liquidity remains in deficit, with the central bank injecting a net INR 978.26 billion--a proxy for systemic liquidity conditions--on Monday, up from an over-three-week low of INR 289.58 billion on Sunday.

"Now the deficit has widened even after the regular VRRs (variable rate repo auctions) by the RBI, and the depreciation in the rupee has also kept the liquidity under pressure, so banks have picked up borrowing through CD," a dealer at a private bank said. Some dealers also cited banks' need for funds to refinance papers maturing in January as the reason for increased borrowing. As of Tuesday, CDs worth INR 893.15 billion are set to mature this month.

Punjab National Bank was the largest issuer Tuesday, borrowing INR 40.00 billion through a one-year paper at a coupon of 7.68%. The state-owned bank has the largest redemptions due this month, at INR 208.10 billion. The next big issuer was Small Industries Development Bank of India, which raised INR 30.00 billion, also at 7.68% through a one-year paper. On Monday, Union Bank of India was the largest issuer of CDs, borrowing INR 25.00 billion at 7.60% through a one-year paper.

Meanwhile, issuances in the commercial paper segment slid to INR 19.25 billion from INR 46.75 billion Monday, with dealers citing increased rates as the reason for the same. Rates on three-month commercial papers issued by manufacturing companies remained up at 7.40-7.45%, while those on similar-maturity CPs issued by non-banking finance companies were also elevated at 7.70-7.75% after rising 25 bps on Monday.

"There is demand from mutual funds now, but the rates are still high because of the (liquidity) deficit in the banking system," a dealer at a non-banking financial institution said. L&T Finance was the largest issuer of CPs on Tuesday, borrowing INR 10.00 billion at 7.40% through a paper with an intra-month maturity.

--Primary market

* Aditya Birla Housing Finance, ONGC Petro, ICICI Securities, and L&T Finance raised funds through CPs.

* PNB, SIDBI, Federal Bank, and Indian Bank raised funds through CDs.

--Secondary market

* Canara Bank's CD maturing on Jan. 16 was traded thrice at a weighted average yield of 7.0486%.
* Export Import Bank of India's CP maturing on Jan. 13 was traded thrice at a weighted average yield of 7.0527%.

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

Edited by Ashish Shirke

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