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Informist, Thursday, May 8, 2025

By Siddhi Chauhan

MUMBAI – Borrowing through commercial paper rose sharply on Thursday on the back of two big-ticket issuances by Power Finance Corp. Ltd and Export-Import Bank of India. Meanwhile, no funds were raised through certificates of deposit as investors and issuers failed to agree upon rates, dealers said. 

On Thursday, INR 72.75 billion was raised through CPs, sharply up from INR 18.00 billion raised on Wednesday. PFC was the largest issuer, raising INR 30 billion through a two-month paper at 6.68%, followed by the Export-Import Bank of India, which raised INR 25 billion through a three-month paper at 6.57%. 

This is the first time since December that PFC has tapped the short-term debt market, likely due to some operational requirements, dealers said. "They (PFC) don't come to the market that often. They usually issue funds through the corporate bond market," a dealer at a brokerage firm said. "Mutual funds don't generally go for a July maturity paper because the levels are quite high. But still, they managed to get it at a fine level because they are not a frequent issuer." On Thursday, the rate on the two-month papers issued by non-banking financial companies was at 6.75%. 

Apart from these two issuers, Axis Finance, Kotak Securities, ICICI Securities and HDFC Securities also tapped the short-term debt market. These issuers tapped the short-term debt market due to rollover needs, dealers said. 

The borrowing costs on the three-month papers issued by non-banking financial companies and manufacturing companies were largely unchanged from Wednesday's rate at 6.70-6.90% and 6.55-6.75% respectively.

It seemed to be a tug-of-war situation for the CD market. Despite having rollover requirements, banks did not raise funds Thursday as they were unwilling to issue at high rates, dealers said. "We wanted to raise funds today (Thursday), but the current rates are quite high," a dealer at a state-owned bank said. "We are waiting for the rates to come down, but the possibility seems quite unlikely given the current situation."

While the rates on the three-month paper issued by banks were similar to Wednesday's level at 6.50-6.70%, it was still on the higher end of the range even as the liquidity in the banking system remained surplus, dealers said. On Wednesday, the RBI had net absorbed INR 1.42 trillion from the banking system, slightly higher than INR 1.37 trillion on Tuesday.

Issuers' appetite in both the CP and CD markets was impacted due to a cash crunch from mutual funds, which resulted in them demanding higher rates, dealers said. Another reason for elevated rates was the escalation in India and Pakistan tensions, dealers said. "Mutual funds are facing some crunch in funds as the flows they received were less," a dealer at a mutual fund said. "The India and Pakistan situation has also resulted in rates to remain elevated because no one is certain what the situation will be. So issuers are not ready to issue at a higher rate, while investors don't want to lock in a lower rate." Owing to this, the rates in the secondary market for nine-month and 10-month papers rose by 12 basis points. 

The Indian government said armed forces Thursday morning targeted air defence radars and systems in Pakistan and neutralised at least one air defence system in Lahore in retaliation for Islamabad's attempt to target military establishments in northern and western India. At a media briefing Thursday evening, Foreign Secretary Vikram Misri said the Indian response to Islamabad's attempt to target military establishments in India was precise and non-escalatory.

--Primary market

* Export-Import Bank of India, Power Finance Corp, HDFC Securities, Kotak Securities, ICICI Securities, and Axis Finance raised funds through CPs.

* No funds were raised through CDs.

--Secondary market

* Punjab National Bank's CD maturing Friday was traded five times at a weighted average yield of 5.8774%.

* Reliance Retail Ventures' CP maturing Friday was traded 11 times at a weighted average yield of 5.9137%.

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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