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Informist, Friday, Jun. 6, 2025

By Siddhi Chauhan

MUMBAI - Short-term debt issuances jumped as borrowing costs cooled off Friday after the Reserve Bank of India announced a 100-basis-point cut in the cash reserve ratio while detailing the outcome of Monetary Policy Committee's meeting, dealers said. A jumbo rate cut also contributed to the sharp fall in rates, they said. Commercial papers worth INR 181.50 billion were raised Friday, sharply up from INR 47.00 billion Thursday, while certificates of deposit worth INR 50 billion were raised Friday, up from INR 21 billion Thursday. 

The RBI announced a 100 basis points cut in CRR to 3% of banks' net, demand and time liabilites starting September. The reduction in cash reserve ratio will be carried out in four equal tranches with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29, Governor Sanjay Malhotra said. The CRR cut is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system,  Malhotra said. In December, the regulator had lowered the cash reserve ratio by 50 bps to 4.00% of net, demand and time liabilities in two equal tranches, infusing INR 1.16 trillion of liquidity into the system. 

CRR cut was not the only surprise announced by the central bank, as it unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. "As soon as the governor announced a 50 bps rate cut, many issuers showed interest in raising funds at a much lower level," a dealer at a brokerage fund said. "However, the fall in rates was much significant when he (governor) announced CRR cut because this was compeletely unexpected." 

The indicative rates on the three-month paper issued by non-banking financial companies fell by 35 bps to 5.95-6.15%, while the similar maturity papers issued by manufacturing companies saw a fall of 29 bps to 5.78-5.98%. The rates on three-month papers issued by banks also saw a fall of 32 bps to 5.75-5.95%.  

Small Industries Development Bank of India was the largest CP issuer raising INR 30 billion through a three-month paper at 6.75% followed by Reliance Jio and Reliance Retail Ventures Ltd. raising INR 25 billion each through three-month papers at 5.80% and 5.90% respectively. On Thursday, Bharat Heavy Electricals Ltd. raised INR 6.50 billion through a three-month paper at 6.42%.

Several banks which were on the sidelines Thursday also tapped the short-term debt market Friday. Indian Bank, Bank of India, Indian Overseas Bank, Canara Bank and Indian Bank raised INR 10 billion each through three-month papers Friday. On Thursday, Bank of Baroda was the largest CD issuer and raised INR 16.00 billion through a three-month paper at 6.07%. 

Going forward, market participants expect the issuances to pick up significantly, dealers said. "Now that they have changed the stance to neutral, hopes of rate cut in the next MPC have died down," a dealer at a brokerage firm said. "This would mean that the issuers won't sit back in anticipation of further fall in rates, instead they will now start raising funds as they know there is no downside." 

The MPC members also unanimously changed the stance to 'neutral' from 'accommodative'. Following this announcement, hopes of further rate cuts withered, leading the market to expect the terminal repo rate to remain at 5.50%. Many market participants also expect the central bank to do away with the daily variable rate repo operations.

--Primary market

* SIDBI, Reliance Industries, Reliance Jio, Godrej Agrovet, Godrej and Boyce, Reliance Retail Ventures, Tata Capital Housing, Axis Securities, HDFC Securities, Bajaj Finance Securitiesm, SBI Capital Securities, SBI Global Factors, Aditya Birla Money, Aseem Infrastructure, Motilal Oswal, IGH Holdings, Tata Capital, Birla Group Holdings and L&T Finance Ltd.. raised funds through CP.

* Indian Bank, Bank of India, Indian Overseas Bank, Canara Bank, and Indian Bank raised funds through CDs.

--Secondary market

* HDFC Bank's CD maturing Monday was traded twice at a weighted average yield of 5.5830%.

* ICICI Securities Ltd.'s CP maturing Monday was traded four times at a weighted average yield of 5.5888%.

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 Vandana Hingorani

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