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Informist, Monday, Apr. 7, 2025

By Siddhi Chauhan

MUMBAI – Issuances in the short-term debt market fell sharply Monday as issuers stayed on the sidelines ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, dealers said. Comfortable systemic liquidity also capped issuers' interest to tap the short-term debt market, they added. Fundraising through commercial paper fell to INR 17.50 billion Monday, down sharply from INR 142.00 billion on Friday. Meanwhile, no fund was raised through certificates of deposit on Monday against INR 12.00 billion of issuance Friday.

"Banks have enough liquidity with them right now, if you see we have a sizeable surplus. This is one of the reasons that we are seeing tepid issuances from banks' side even though (short-term debt) rates have fallen in April," a dealer at a private bank said. Rates on papers issued by banks were at 6.60-6.80%, the same as Friday. "Another reason for the disinterest in raising funds is that this month is not very heavy on the maturity front, so rollover demand is not that high." In April CDs worth INR 431.85 are set to mature, which is far lower than INR 1.64 trillion which matured in March, as per data compiled by Informist Media.  

On Sunday, the net liquidity absorbed by the RBI was INR 1.61 trillion. While some strain is expected on the banking system liquidity due to outflows for excise duty and income tax deducted at source, the impact of this may not be significant, dealers said. These outflows which likely took place during the day may drain around INR 500 billion to INR 700 billion from the system, dealers said. "Average net LAF (liquidity adjustment facility) surplus for the last week was at ~Rs 1.4 tn (around INR 1.4 trillion) as compared to deficit of ~Rs 1.3 tn (around INR 1.3 trillion) in the week prior," Kotak Mahindra Bank said in a research report. "Accordingly, overnight rates fell by 81 bps wow (week-on-week) to 6.01%. The RBI announced OMO purchases to the tune of Rs 800 bn (INR 800 billion) in the month of April (in four tranches), which is expected to be supportive of liquidity conditions. With RBI's proactive approach on liquidity and surplus liquidity conditions, we expect overnight rates to remain comfortable. Overall, we expect both system and durable liquidity to be in surplus in the coming months." 

Meanwhile, in the CP market, Bharat Heavy Electricals Ltd. was the highest CP issuer raising INR 10.00 billion at 6.73% through near three-month paper. Sundaram Finance raised INR 7.50 billion through six-month paper at 7.10%. "Issuers are not in a rush to raise funds right now because they know that rates will fall after MPC outcome," a dealer at a brokerage firm said. "The market is widely expecting a rate cut, apart from that some participants expecting stance change. This is why everyone is on a wait and watch mode."

The rate-setting panel's three-day meeting began Monday. Market participants expect RBI Governor Sanjay Malhotra to announce a repo rate cut of 25 basis points and a change of stance to 'accommodative' from 'neutral', which the market has already priced in. However, some market players are doubtful if the central bank would go beyond the rate cut, dealers said. 

Currently, the rates on three-month paper issued by non-banking finance companies are unchanged from Friday at 6.75-6.90%, dealers said. Rates on CPs issued by manufacturing companies were also unchanged at 6.65-6.85%.

--Primary market

* Bharat Heavy Electricals Ltd and Sundaram Finance raised funds through CPs.

* No funds were raised funds through CDs.

--Secondary market

* Bank of Baroda's CD maturing on May 6 was traded thrice at a weighted average yield of 6.4097%.

* Godrej Industries' CP maturing on Apr. 15 was traded once at a weighted average yield of 6.4697%.

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 Akul Nishant Akhoury

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