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Informist, Thursday, Jan. 9, 2025

By Siddhi Chauhan

MUMBAI – Issuances of certificates of deposit rose to INR 31 billion on Thursday against just INR 5 billion Wednesday as tight liquidity conditions forced some banks to tap the short-term debt market to avail funds, dealers said.

On Wednesday, the net liquidity injected by the Reserve Bank of India--a proxy for systemic liquidity conditions--rose to INR 1.82 trillion from INR 1.44 trillion on Tuesday. Liquidity deficit widened on Wednesday due to outflows for excise duty and tax deducted and payment for state government securities auctioned the previous day, dealers said.

Payments for excise duty and tax at source likely drained around INR 200 billion, while payment of state government securities took out another INR 195.25 billion from the banking system on Wednesday. Apart from that, dollar sales by the central bank as part of its foreign exchange intervention also drained liquidity, dealers said. 

On Thursday, Bank of Baroda and Union Bank of India were the only banks that raised funds through CDs. Bank of Baroda raised INR 26 billion through papers maturing in a year at 7.68%. Union Bank raised INR 5.5 billion through CDs maturing in a year at 7.6850%. On Wednesday, Kotak Mahindra Bank was the sole issuer of CDs, raising INR 5 billion through papers maturing in one year at 7.63%. 

Even though CD issuances were high in comparison with the previous day, the quantum was far lower than the week's average of INR 55 billion. "The rates of borrowing are high; most banks are waiting for them to cool before issuing CDs. Even if there is a deficit, banks don't want to borrow funds at such high rates," a dealer at a state-owned bank said. "Banks who are in dire need of funds are borrowing via one-year paper as three month rates are very high." Rates on three-month CDs issued by banks were quoted at 7.50-7.55%, flat from the previous day.

Issuances through commercial papers were little changed from the previous day's figure as issuers were not keen to raise funds at higher rates, dealers said. On Thursday, INR 7 billion was raised through CPs against INR 3 billion the previous day, dealers said. Birla Group Holdings, the sole issuer on Thursday, raised the entire amount at 7.82% through a paper maturing in March.

"Nobody wants to raise funds at such high rates, everyone is waiting for the rates to cool down," a dealer at a brokerage firm said. "Issuances may pick up after liquidity conditions improve." Rates on three-month CPs issued by manufacturing companies were at 7.55-7.60%, flat versus Thursday. Rates on similar-maturity CPs issued by non-banking finance companies were also unchanged from Wednesday at 7.80-7.85%.

--Primary market

* Birla Group Holdings raised funds through CPs.

* Union Bank and Bank of Baroda raised funds through CDs.

--Secondary market

* Small Industries Development Bank's CD maturing on Jan. 10 was traded six times at a weighted average yield of 6.9126%.
* Grasim Industries' CP maturing on Jan. 10 was traded once at a weighted average yield of 6.9728%.

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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