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Informist, Wednesday, May 21, 2025

By Sachi Pandey

MUMBAI – Borrowing through commercial paper surged Wednesday as companies rushed to tap the short-term debt market amid falling rates, dealers said. CP issuances shot up to INR 134.50 billion, more than double the amount of INR 57.50 billion raised Tuesday.

The surge was led by big-ticket issuers such as Small Industries Development Bank of India, which raised INR 50.00 billion via three-month paper at a rate of 6.25%. ICICI Securities followed, raising INR 19.50 billion through three CP maturing in three months at 6.57–6.65%. Motilal Oswal Financial Services raised INR 16.00 billion via two CP at 6.76% and 6.86%. Tuesday, National Bank for Agriculture and Rural Development had been the top issuer with INR 50.00 billion raised at 6.38%, also maturing in three months.

"Rates have dropped sharply and companies that stayed away in March are now entering the market," a dealer at a mid-sized brokerage said. "Besides upcoming maturities, the rates are attractive for issuers and investors both." Dealers also noted that demand for CP has outpaced that for certificates of deposit as investors see better value in the former after the repo rate cut by the Reserve Bank of India.

Funds raised through certificates of deposit also picked up as banks raised INR 45.00 billion through the market. Canara Bank, Indian Bank, and Punjab and Sind Bank each raised INR 10.00 billion through CDs maturing in three months. Tuesday, UCO Bank had raised INR 15.00 billion through two CDs maturing in one year. The bank got a rate of 6.85% on the INR-10.00-billion paper, while the INR-5.00-billion paper was issued at a slightly lower rate of 6.83%. 

While CP rates were mostly steady Wednesday, short-term CD rates fell further. Indicative rates on three-month CP by non-banking finance companies were at 6.60–6.80%, while those by manufacturing firms were quoted at 6.55–6.75%.

However, three-month CD rates fell over 10 basis points to 6.22–6.42%, driven by expectations of another 25-bps rate cut in June and a record surplus transfer from the RBI to the government. "The market is pricing in a rate cut and a big surplus dividend from the RBI this week is expected to improve liquidity," a dealer at a private-sector bank said. At the start of May, CD rates were around 6.55% but have dropped sharply on expectations of a looser monetary policy.

The RBI is expected to transfer INR 2.50 billion–INR 3.50 trillion to the government for the financial year 2024-25 (Apr-Mar), up from INR 2.10 trillion in FY24. This would ease liquidity conditions and reduce banks' short-term borrowing needs, dealers said.

Investors, particularly mutual funds, are now locking in rates before they fall further. "No one wants to sell now," a dealer at a state-owned bank said. "Everyone is holding their positions ahead of the expected rate cut in June."

Market participants also anticipate an increase in issuances in June due to quarter-end needs and the likely rate cut in the first week.

--Primary market

* SIDBI, Chennai Petroleum Corp. Ltd., Godrej Industries, Tata Capital, ICICI Securities, Axis Securities, Kotak Securities, Bajaj Finance Securities, HDFC Securities, SBI Capital Securities, Motilal Oswal Financial Services Ltd., Aditya Birla Money, Cholamandalam Finance, Bajaj Finance, L&T Finance, and Sumitomo Mitsui Financial Group raised funds through CP.

* Bank of Baroda, Canara Bank, Indian Bank, UCO Bank, Punjab and Sind Bank, and Indian Overseas Bank raised funds through CDs.

--Secondary market

* Indian Overseas Bank's CD maturing Thursday was traded twice at a weighted average yield of 5.9505%.

* Bajaj Finance Ltd's CP maturing Thursday was traded five times at a weighted average yield of 5.8409%.

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

With inputs from Vidhushi RajPurohit

Edited by Rajeev Pai

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