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Informist, Wednesday, Jan. 8, 2025

By Siddhi Chauhan

MUMBAI – Issuances in the short-term debt market tumbled as issuers remained on the sidelines because of high rates, dealers said. Rates on three-month certificates of deposit issued by banks were quoted at 7.50-7.55%, up 5 basis points from the previous close. Similarly, rates on three-month commercial paper issued by manufacturing companies rose sharply by 15 bps to 7.55-7.60% Wednesday. Rates on similar-maturity CP issued by non-banking finance companies were at 7.80-7.85%, up 10 bps from 7.70-7.75% the previous day.

"The rates have risen sharply, nobody would want to raise funds at such high rates," a dealer at a brokerage said. "Many banks which wanted to raise funds did so yesterday via paper maturing in one year."

On Wednesday, Kotak Mahindra Bank was the sole issuer of certificates of deposit, raising INR 5 billion through paper maturing in one year at a rate of 7.63%. This was a drastic fall from the INR 100 billion raised Tuesday through CDs.

Rates rose sharply owing to a cash crunch in the financial system, dealers said. On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 1.44 trillion from INR 978.26 billion Monday. Outflows for excise duty and tax deducted at source of around INR 700 billion from the banking system over the past three days resulted in a cash crunch, dealers said.

Commercial paper issuances also suffered the same fate. On Wednesday, only INR 3 billion were raised through CP maturing in 11 months by Tata Projects at a rate of 8.01%. This is down from INR 19.25 billion raised Tuesday. 

"Issuers are now waiting for the rates to cool, which will only happen once the liquidity conditions cool," a dealer at another brokerage said. "Many issuers were looking to raise funds but could not due to the high rates. Demand from mutual funds is also weakened because of the high (liquidity) deficit."

In the secondary market, some mutual funds were seen selling paper aggressively to arrange funds, dealers said. 

--Primary market

* Tata Projects raised funds through CP.

* Kotak Mahindra Bank raised funds through CDs.

--Secondary market

* Bank of Baroda's CD maturing on Jan. 9 was traded five times at a weighted average yield of 6.7903%.
* Cholamandalam Investment and Finance Co. Ltd.'s CP maturing on Feb. 10 was traded thrice at a weighted average yield of 7.5504%.

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 Rajeev Pai

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