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Informist, Thursday, Feb. 13, 2025

By Vidhushi RajPurohit

MUMBAI – High borrowing rates and reduced demand from issuers led to a slump in borrowings through short-term debt instruments Thursday, dealers said. The Reserve Bank of India's 25-basis-point repo rate cut last week is yet to reflect in interest rates in this market, they said. The high cost of borrowing has persisted owing to the massive liquidity deficit in the banking system.

On Thursday, fund-raising via certificates of deposit fell to INR 5.00 billion from INR 27.50 billion Wednesday, while commercial paper issuances declined to INR 16.50 billion from INR 58.00 billion on the previous day. Only one bank tapped the CD market Thursday, with Federal Bank issuing a one-year paper at 7.70%. Dealers said CDs due to mature in February were lower, with high interest rates also keeping issuers on the sidelines. Some traders also cited reduced appetite from mutual funds, the major investors in debt papers, as the reason for low issuances.

Dealers also pointed out that the RBI's daily variable rate repo auctions have reduced banks' demand for funds through CDs. "Borrowing for a three-month tenure was a way for banks to mostly manage their day-to-day operations and we kept rolling over that as and when needed," a dealer at a private bank said. "If the RBI discontinues the VRR operations, then we may see a sharp pick up in CD issuances."

Systemic liquidity conditions are not seen returning to the surplus zone in the near future, with some dealers expecting it to be in deficit at least till the end of March, with the RBI's continued intervention in the foreign exchange market draining the rupee liquidity. On Wednesday, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--was INR 2.07 trillion. As such, dealers do not expect last week's repo rate cut to result in lower short-term borrowing rates anytime soon. Rates on three-month CDs were unchanged on Thursday at 7.40-7.45%.

In the CP segment, Bajaj Finance was the largest issuer, raising INR 12.00 billion through a three-month paper at 7.72%. The other two issuers were Aditya Birla Finance and ICICI Securities, which also raised funds through three-month papers. Aditya Birla Finance borrowed INR 3.00 billion at 7.75%, while ICICI Securities borrowed INR 3.50 billion at 7.80%. Rates on three-month CPs issued by manufacturing companies on Thursday were similar to Wednesday's levels of 7.50-7.55%. Rates on CPs issued by non-banking financial companies were also unchanged at 7.75-7.80%.

--Primary market

* Federal Bank raised funds through CDs.

* Bajaj Finance, Aditya Birla Finance, and ICICI Securities raised funds through CPs.

--Secondary market

* Bank of Baroda's CD maturing on Feb. 20 was traded four times at a weighted average yield of 6.7979%.

* NTPC's CP maturing on Feb. 24 was traded six times at a weighted average yield of 6.9496%.

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 Saji George Titus

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