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Informist, Thursday, Mar. 6, 2025

By Kabir Sharma

MUMBAI – Issuances of certificates of deposit rose Thursday despite borrowing rates being firm as banks rushed to raise funds to meet year-end needs, dealers said. "Rates are still high as the first week of March had lots of redemption. This month it might stay elevated with lots of issuances from banks due to quarter-end and year-end. Mutual funds want to lock-in the current rates as there is talk about April (repo) rate cut which will bring down rates later, so they are actively investing when rates are high," a dealer at a state-owned bank said.

Banks raised a total of INR 132.50 billion on Thursday through CDs compared with INR 100.25 billion Wednesday. Small Industries Development Bank of India was the largest borrower at INR 60.00 billion through a one-year paper at 7.69%, and Bank of Baroda raised INR 40.00 billion through a three-month paper at 7.55%. Dealers said CD issuances may remain firm going ahead despite improvement in banking system liquidity as there is high demand for credit, with investors--particularly mutual funds--ready to invest. Rates on three-month papers were in the range of 7.45-7.65%.

In the commercial paper segment, companies raised INR 68.95 billion on Thursday, down from INR 91.25 billion Wednesday. "NBFCs are also now looking at banks (for funds) after the risk weights were lowered. So they are coming to the market mostly for rollovers," a dealer at a brokerage firm said.

On Feb. 25, the Reserve Bank of India reversed the hike in risk weights on bank loans to non-banking finance companies it had announced in November 2023. Analysts, however, are not convinced if the shadow lenders will benefit immediately from the restoration of the lower risk weights, with Fitch Ratings Thursday saying that the central bank's decision to do so is "unlikely to result in a rapid increase in bank funding" to the segment.

"We believe larger NBFIs (non-bank financial institutions) with good credit standing will seek to renegotiate their funding spreads from banks in light of the reduced risk charges. Still, the effects may not extend as broadly to the rest of the sector. Small and mid-sized NBFIs that are more heavily dependent on bank funding may only benefit if banks increase their appetite for higher-risk lending, which we think is unlikely," Fitch analysts said.

Export-Import Bank of India was the largest issuer of CPs on Thursday, raising INR 25.00 billion for three months at 7.58%. Rates on three-month CPs of non-bank financial companies were in the range of 7.90-8.10%, while those of manufacturing companies were in the range of 7.60-7.80%.

--Primary market

* Canara Bank, SIDBI, and Bank of Baroda raised funds via CDs.

* L&T Finance, Export-Import Bank of India, Tata Realty and Infrastructure, Tata Housing Development, Axis Securities, Kotak Securities, Hero Fincorp, and Aseem Infrastructure Finance raised funds through CPs.

--Secondary market

* National Bank for Agriculture and Rural Development's CD maturing on Friday was traded four times at a weighted average yield of 6.0148%.

* Reliance Industries' CP maturing on Mar. 17 was traded five times at a weighted average yield of 6.7896%.

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

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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