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Informist, Tuesday, Jun. 3, 2025

By Sachi Pandey

MUMBAI – Rates on short-term debt instruments continued to decline on Tuesday, deepening last week's fall as traders bet on a rate cut by the Reserve Bank of India later this week and issuers took advantage of surplus liquidity in the banking system. After falling by over 30 basis points last week, rates on commercial papers and certificates of deposit declined another 5–10 bps across tenures, dealers said.

Three-month commercial papers issued by non-banking financial companies were quoted at 6.30–6.50%, down 5 bps from the previous trading day. Similar maturity papers issued by manufacturing companies were quoted at 6.07–6.37%, down 10 bps. Three-month CD rates were quoted at 6.05–6.25%, down 5 bps from 6.10–6.30% on Monday.

"Issuers are making the most of the positive market sentiment. They're quoting lower rates, and investors are lapping them up, expecting more room for rates to fall," said a dealer at a mid-sized brokerage firm.

The drop in yields has also narrowed the spread between Treasury bills and short-term debt instruments. A debt fund manager at a mid-sized mutual fund house said spreads are now at their tightest in two to three years. "It's a great time for issuers. They won't miss this opportunity," the fund manager said. The spread between 91-day Treasury bills and three-month CPs and CDs is now in the range of 40–60 bps, making short-term debt attractive to issuers and borrowers in the current market conditions.

On Tuesday, CP issuances rose sharply on demand at even lower yields. Companies raised INR 100.75 billion through CPs, more than triple the INR 32 billion raised on Monday. Export-Import Bank of India led the pack, issuing INR 24.50 billion through three-month papers at 6.10%. Small Industries Development Bank of India followed with a INR 20 billion CP issuance at 6.14%. Among non-banking financial companies, ICICI Securities was the biggest issuer, raising INR 11 billion through three-month CPs at 6.49%.

"Public sector entities always get better pricing than NBFCs," the fund manager quoted above added. "While banks may consider PSUs as NBFCs, mutual funds treat PSUs distinctly, and the pricing reflects that."

On Monday, Indian Oil Corp. was the top issuer with INR 25.50 billion raised through two CPs of the same maturity but at different coupons.

Banks returned to the short-term market on Tuesday after a two-day pause, raising INR 30 billion through CDs. Bank of Baroda issued INR 20 billion through three-month papers at 6.07%, while Canara Bank raised INR 10 billion at 6.05% through CPs of the same maturity.

Dealers noted that while some issuers are entering the market for rollover needs, others are taking advantage of falling rates to frontload their funding. Market participants expect the softening in short-term rates to continue ahead of the RBI's monetary policy decision on Friday. The central bank is widely expected to cut the repo rate by 25 bps to 5.75%, its third consecutive reduction. According to an Informist poll of 14 economists and treasury officials, 13 expect a 25-bps cut, while one sees 50 bps cut on Friday. Any surprise could trigger a sharp market reaction.

--Primary market

* Export Import Bank of India, LIC Housing Finance, Can Fin Homes, Godrej Industries, Tata Projects, Godrej Properties, Tata Capital, Kotak Securities, ICICI Securities, Axis Securities, Bajaj Financial Securities, Birla Group Holding, Pilani Investments, Aditya Birla Money, Motilal Oswal Financial Services, and Small Industries Development Bank of India raised funds through CPS.

* Canara Bank and Bank of Baroda raised funds through CPS.

--Secondary market

* Union Bank of India's CD maturing Wednesday was traded eight times at a weighted average yield of 5.7679%.

* National Bank for Agriculture and Rural Development's CP maturing Wednesday was traded twice at a weighted average yield of 5.7679%.

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

Edited by Saji George Titus

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