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Informist, Tuesday, Jan. 28, 2025

By Sachi Pandey

MUMBAI – The Reserve Bank of India's announcement Monday of measures to boost liquidity in the banking system by around INR 1.5 trillion weighed on rates in the short-term debt market, leading to a slight rise in issuances by banks, dealers said. "Issuances in CDs (certificates of deposit) are high today (Tuesday) because rates on three-month paper have fallen," a dealer at a state-owned bank said. "Banks wanted to issue paper amid high deficit but did not because of tight rates, but now since rates have cooled they are borrowing."

Late Monday, the RBI said it would purchase government bonds worth INR 600 billion via open market operations in three tranches, hold a six-month dollar/rupee buy/sell swap auction for $5 billion on Friday, and conduct a 56-day variable rate repo auction for INR 500 billion on Feb. 7. The central bank added that it would "continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions".

Following the announcement, expectations of a 25-basis-point rate cut at the Monetary Policy Committee's Feb. 5-7 meeting rose. The RBI's rate-setting panel has left the repo rate unchanged at 6.50% for close to two years now.

"After the RBI's announcement to infuse liquidity, the entire market has reacted and rates have eased overall," a dealer at a mid-sized brokerage said. "There is some redemption pressure also, but the rates are majorly down because finally the RBI did something for liquidity, which has been a big concern in the market for the last many days."

Rates on three-month certificates of deposit were quoted at 7.50-7.55%, down 5 bps from Monday. Rates on three-month commercial paper issued by non-banking finance companies were quoted at 7.85-7.90% Tuesday, compared with 7.95-8.00% Monday. The indicative levels for manufacturing companies' three-month paper were quoted 5 bps lower at 7.55-7.60%.

Banks borrowed INR 92.50 billion through CDs Tuesday, against INR 53 billion raised Monday. Union Bank of India was the largest CD issuer Tuesday, borrowing INR 20 billion through paper maturing in three months at a rate of 7.47%. Indian Bank and Punjab & Sind Bank raised INR 10 billion each through three-month paper at 7.50% and 7.57%, respectively. 

However, issuances of commercial paper slipped further Tuesday, with companies and non-banking finance companies raising INR 13.50 billion, as compared with INR 15.50 billion raised Monday. Dealers attributed the fall to a lack of major issuers in the CP market. Aditya Birla Finance was the largest issuer of CP, raising INR 5 billion via three-month paper at a rate of 7.88%. 

--Primary market

* Aditya Birla Finance, Aditya Birla Housing Finance, ICICI Securities, BOBCARD, Kotak Securities, Aditya Birla Money, and Birla Group Holdings raised funds through CP.

* Union Bank of India, Indian Bank, Punjab & Sind Bank, and IDFC First Bank raised funds through CDs.

--Secondary market

* Punjab National Bank's CD maturing on Feb. 20 was traded six times at a weighted average yield of 7.3829%.
* L&T Finance's CP maturing on Wednesday was traded twice at a weighted average yield of 6.6077%.

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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