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Informist, Friday, May 23, 2025

By Sachi Pandey

MUMBAI – The short-term debt market hit the brakes on Friday, with issuances falling sharply as participants waited for surplus transfer announcement by Reserve Bank of India to the central government for financial year 2024-25 (Apr-Mar), dealers said. "The market was in a wait-and-watch mode the entire day. They were waiting for the surplus announcement as it will impact the rates," said a fund manager at a mid-sized mutual fund.

Commercial paper issuances fell drastically to INR 10.25 billion on Friday, down from INR 50 billion the previous day. Aditya Birla Housing Finance led the day's activity, raising INR 5 billion through three-month CPs at 6.21% rate. On Thursday, Reliance Retail Ventures had raised INR 15 billion at 6.24% for a similar tenor.

Fundraising through certificate of deposit was equally subdued. Only one bank--Punjab National Bank--tapped the market, raising INR 10 billion at 6.18% rate. On Thursday, Canara Bank had issued INR 20 billion worth of three-month CDs at 6.20% rate.

The rates remained stable on Friday, dealers said. 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%. Three-month CD rates were indicated at 6.22–6.42%. 

However, market participants expect the rates to react after the RBI approved the transfer of a record INR 2.69 trillion as surplus to the central government for financial year FY25, the central bank said in a release. "The transfer was lower than expected, so markets may react slightly on Monday," said a dealer at another mid-sized brokerage. "But the short-term debt space is more likely to follow liquidity cues and the rate outlook."

At INR 2.69 trillion, the surplus transfer is slightly lower than the INR 2.8 trillion analysts had expected. The RBI had transferred INR 2.11 trillion to the government last year. The Union Budget for FY26 had pencilled in INR 2.56 trillion as receipts from RBI's surplus transfer and dividends from state-owned banks.

Market participants also anticipate a fall in rates as they expect the RBI to cut rates during its Jun. 6 monetary policy review, a move seen as likely given the central bank's efforts to manage liquidity and inflation. "Rates have already edged lower due to tight supply and high demand," said a dealer at a brokerage firm. "But we expect them to fall further as we get closer to June. So many issuers will also wait for that to happen before tapping the markets"

The RBI net absorbed INR 1.32 trillion from the banking system on Wednesday and banks had parked INR 1.71 trillion with the RBI at the Standing Deposit Facility, a reflection of comfortable liquidity conditions in the market.

--Primary market

* Aditya Birla Housing Finance, Sundaram Home Fiannce, BOBCARD, GIC Housing Finance, and Bharat Heavy Electricals Ltd. raised funds through CPs.

* Punjab National Bank raised funds through CDs.

--Secondary market

* Punjab National Bank's CD maturing Monday was traded twice at a weighted average yield of 5.9118%.

* Tata Steel Ltd.'s CP maturing Monday was traded three times at a weighted average yield of 5.9037%.

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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