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Informist, Thursday, Feb. 13, 2025

 

By Siddhi Chauhan and Kabir Sharma

 

MUMBAI – Low redemptions and a sharp rise in borrowing rates kept corporates from tapping the short-term debt market in January, which led to borrowing through commercial papers falling to to an eight-month low, market participants said. Issuances through CPs fell a whopping 41.5% on month to INR 880.25 billion in January, according to data compiled by Informist.

 

Clearing Corp. of India data collated by Informist showed CPs worth INR 880.69 billion were due to mature in January, which was sharply lower than maturity of INR 1.56 trillion in December. "Issuers raised funds with respect to the rollover demand. Since redemption scheduled for this month was pretty low, fundraising was also low," a dealer at a mid size brokerage fund said. 

 

Another reason which supressed issuer supply in January was high rates on short-term debt instruments, dealers said. While rates for CPs issued by manufacturing companies rose 7 basis points, those issued by non-banking financial companies rose 32 bps. For manufacturing entities, the rates for three-month CPs were at 7.52-7.57% near the end of January, against 7.45-7.50% quoted at the start. Papers of similar maturity issued by non-banking financial entities also rose to 7.82-7.87% from 7.50-7.55%. 

 

Rates on the short-term debt instruments saw a sharp rise in January due to a consistent high liquidity defict. On Jan. 23, the liquidity deficit rose to a one-year high of INR 3.16 trillion. For most of the month, liquidity deficit remained well above INR 1 trillion. 

 

Rates on commercial papers were also high in January, especially for non-bank finance companies, due to the maturity of three-month papers crossing over into the next financial year which involves a period of high liquidity crunch at the end of March. "What is happening is that if you are asking people to buy anything, you have to buy three-month (paper) and you are crossing March. You are paying the premium for crossing March. That is the reason why they are ready to pay higher price," Murthy Nagarajan, head of fixed income at Tata Mutual Fund, said. "In a normal situation if you are crossing March, people will ask for higher premium."   

 

Of the total borrowing, issuances by non-banking financiers constituted a major chunk, totalling INR 580.27 billion. Amongst non-banking financial institutions, National Bank for Agriculture and Rural Development was the largest issuer raising INR 156.75 billion in January, followed by Bajaj Finance Ltd. which raised INR 60.05 billion. 

 

Meanwhile, manufacturing companies raised INR 223.28 billion, of which Reliance Industries Ltd. raised INR 47.25 billion alone. Larsen and Toubro was the second-largest issuer, raising INR 34 billion through CPs last month.

 

Fundraising by housing finance companies in the month amounted to INR 66.70 billion, of which a major chunk was issued by Can Fin Homes and Tata Capital Housing Finance with issuances worth INR 15 billion each. Real Estate Investment Trust also tapped the CP market in January by raising INR 10 billion due to roll-over demand. In January, CPs worth INR 7.50 billion were set to mature. 

 

CERTIFICATES OF DEPOSIT

 

Issuances of certificate of deposits dwindled in January despite liquidity remaining in deficit for the better part of the month as rollovers in the month were lower than usual and rates were too high for issuers' liking. Punjab and Sind Bank was the sole issuer in the first week of January. 

 

Issuances picked up from the second week but remained tepid throughout the month due to rates being high, market participants said. Foreign banks were missing from action in January due to slower demand for credit, they said. Banks raised INR 994.24 billion in January through CDs against a maturity of INR 893.15 billion, sharply lower than INR 1.56 trillion raised in December. 

 

As is usually the case, state-owned banks borrowed the highest amount of funds, raising a total of INR 532.35 billion during the month. Private banks raised INR 338.50 billion, whereas NABARD and SIDBI raised a total of INR 123.50 billion.  

                                                                   

Rates on CDs rose as much as 7 bps in January as investors were aware that they could get higher rates later, with two-thirds of the total maturity of CDs typicaly concentrated in Jan-Mar. Around INR 3.90 trillion worth of CDs are maturing in Jan-Mar from a total outstanding of INR 5.80 trillion, market participants said.

 

"You will see out of the total outstanding of 5.80 trillion, 65% is maturing in this quarter only so there was a pressure, what if the banks don't have another avenue, then they will have to figure it beforehand," a dealer at a state-owned bank said. "Plus, the liquidity was also on the tighter side. It was only in the second of the month that RBI introduced measures to cool off liquidity."

 

Despite RBI's efforts to aid liquidity in the latter half of the month, the liquidity deficit remained near the INR 2-trillion mark, prompting the central bank to opt for long-term measures like open market purchases of gilts, a dollar/rupee buy/sell swap, and a 56-day variable rate auction. Albiet, these measures came into effect only in Februrary, leaving banks high and dry in need of funds in January.  

 

Following are details of CPs and CDs issued in January, as per data sourced from the Clearing Corp. of India and compiled by Informist. Amounts in INR billion:

 

CP	January-25	December-24	on-month%	January-24	on-year%
Housing	66.70	81.65	-18.31	66.70	-
NBFC	580.27	1,002.40	-42.11	591.27	-1.86
Manufacturing	223.28	420.76	-46.93	222.28	0.45
REIT	10.00	-	-	-	-
Total	880.25	1,504.81	-41.50	880.25	-

 

CD	January-25	December-24	on-month	January-24	on-year
State-owned banks	532.25	1040.6	(-)48.85	491.85	8.21
Private banks	338.5	460.65	(-)26.52	255.75	32.36
Others	123.5	61	102.46	128.40	(-)3.82
Foreign banks	0	0.25	(-)100.00	-	-
Total	994.25	1,562.25	(-)36.36	876.00	13.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Edited by Tanima Banerjee

 

 

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