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Informist, Monday, Feb. 24, 2025

By Ashna Mariam George 

MUMBAI – The Reserve Bank of India's plan to conduct a $10-billion dollar/rupee buy/sell swap auction on Friday to address liquidity crunch in the system failed to impact the yields on corporate bonds in the secondary market, which ended steady Monday, dealers said. "Liquidity has not been translated yet, so the market has not reacted to it," a dealer at a mid-sized brokerage firm said. "The market is still gauging its impact."

Some sections of the market believe that the measure will not resolve the liquidity crisis as the swap is intended to roll over a previous dollar/rupee buy/sell agreement which will mature in February. "There is some concept of dollar-book of RBI which is coming for a maturity, and that is what this swap intends to (offset), then it may not significantly add to the liquidity in the system," a dealer at a mid-sized private sector bank said.

The RBI will conduct a $10-billion dollar/rupee buy/sell swap auction on Friday, under which it will buy dollars for immediate delivery and sell them for delivery after three years, in order to meet the durable liquidity needs of the system, the central bank said in a press release Friday. This is the biggest quantum for a dollar/rupee swap auction by the RBI on record. The swap will reverse on Mar. 6, 2028, the RBI said.

Liquidity in the banking system has been in deficit since mid-December, with market participants attributing the tightness to the RBI's spot dollar sales to soften the rupee's depreciation. On Friday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit—rose slightly to INR 1.93 trillion, from INR 1.88 trillion on Thursday. 

On Monday, the secondary market of corporate bonds saw deals aggregating to INR 111.77 billion being recorded on the National Stock Exchange and BSE combined, compared with INR 99.81 billion Friday. A handful of mutual funds and banks were active on the buying and selling sides, dealing in shorter tenure papers, dealers said. A few insurance companies were also selling longer-tenure papers, they said.

Papers issued by REC, Indian Railway Finance Corp., Hindustan Petroleum Corp., LIC Housing Finance, Power Finance Corp., Telangana State Industrial Infrastructure Corp., National Bank For Agriculture and Rural Development, Small Industries Development Bank of India, and Kotak Mahindra Prime were traded the most on the exchanges.

In the primary market on Monday, Indian Renewable Energy Development Agency raised INR 8.20 billion through bonds maturing in 11 years at a coupon of 7.40%. Market participants said the coupon was higher than expectations of 7.30% centric levels, due to tepid demand from long-term investors such as insurance companies and pension funds owing to lack of funds. 

On Tuesday, two major public sector entities--National Housing Bank and REC--will tap the market to raise funds through their respective bond offerings. National Housing Bank plans to raise up to INR 50 billion through bonds maturing on Jan. 2, 2032. Market participants expect the coupon to be around 7.25%. 

REC plans to raise around INR 30 billion through perpetual bonds on Tuesday. According to dealers, the coupon for the issue is expected in the 7.28-7.32% range. Mahindra and Mahindra Financial Services, IndoStar Capital Finance, Muthoot Finance, and Truhome Finance are also in line to raise funds on Tuesday. 

BENCHMARK LEVELS FOR CORPORATE BONDS:

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Edited by Tanima Banerjee

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