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Informist, Monday, Jul. 7, 2025

 

By Siddhi Chauhan and Vidhushi RajPurohit

 

MUMBAI – High rollover and quarter-end requirements drove issuances of commercial papers and certificates of deposit to climb to a three-month high in June, market participants said. However, some entities refrained from rolling over their entire maturities due to ample liquidity in the banking system and the availability of other borrowing avenues at cheaper rates, they added.

 

Fundraising through CDs in June increased 62% on month to touch INR 1.31 trillion, according to data compiled by Informist. Although the total amount raised in June was similar to the maturity amount, issuances by private sector banks were lower than their outstanding maturities.

 

Borrowing by state-owned banks contributed to 64.7% of the total fundraising, while private sector banks trailed behind accounting for just 33.7%. State-owned banks raised INR 846.6 billion in June, exceeding the maturity of INR 777.75 billion during the period. 

 

State-owned banks, including Union Bank of India, Canara Bank, and Punjab and Sind bank, raised more funds than the maturity amount. Union Bank of India, which was the largest CD issuer in June, raised INR 191.75 billion, against a maturity of INR 103.75 billion. UCO Bank and Indian Overseas Bank, which did not have any papers due for maturity in June, together raised INR 30 billion, data showed. 

 

"The top issuers in the CD market are mostly public sector banks except HDFC bank, if you see the distribution," said Alok Singh, Group head-Treasury at CSB Bank. "I won't say that there was an immediate need to raise money through CDs in this quarter; however, since rates have fallen and there is ample liquidity, probably banks decided to lock in these rates."

 

Private sector banks raised INR 441.1 billion in June against a maturity of INR 482.45 billion, data showed. Many banks, including ICICI Bank, IndusInd Bank, RBL Bank, Utkarsh Small Finance Bank and Ujjivan Small Finance Bank did not roll over their papers, and redeemed a cumulative INR 101.15 billion in June. 

 

Many private sector banks did not roll over maturities as the liquidity in the banking system was quite comfortable, which made it easier for them to redeem the papers, market participants said. There were banks like Axis Bank, CSB Bank HDFC Bank and Karur Vysya Bank that issued a higher sum than their maturity, data showed. Bandhan Bank, which did not have any maturity scheduled for the month, also tapped the market in June and raised INR 2 billion, likely due to attractive levels, dealers said. 

 

In June, the liquidity surplus, as indicated by the RBI's net absorption of funds from the banking system, averaged INR 2.74 trillion, sharply up from INR 1.71 trillion in May. 

 

The surplus systemic liquidity led to an on-year contraction of CD issuances. The total CD issuances fell 12% from a year ago when the system liquidity was in deficit for major part of the month. The daily average liquidity deficit was INR 546.60 billion in June last year. 

 

Due to humungous liquidity surplus and a surprise 50-basis points cut in policy rates by the Reserve Bank of India's Monetary Policy Committee at its June meeting, the rates on 3-month CD fell 20 bps in June. Rates on the three-month CD were at 5.90-6.10% as of Jun. 30. The fall in the rates were limited by the quarter-end redemption pressures and high maturities during the month, dealers said.

 

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Even though fundraising through CPs jumped to a three-month high in June at INR 1.59 trillion, it was sharply lower than the total maturities during the month, data showed. Many issuers funded their borrowing needs through cheaper avenues due to elevated rates, market participants said. 

 

CPs worth INR 2.13 trillion matured in June, with non-banking financial companies accounting for more than half of it, as per data compiled by Informist. NBFCs rolled over CPs worth INR 743.78 billion in June compared with their total maturity of INR 1.09 trillion during the month. Manufacturing companies rolled over INR 449.11 billion worth of their total maturity of INR 941.77 billion in June. 

 

Unlike the CD market, which saw borrowing rates cooling off after the rate cut in June, rates on the three-month CP hardly fell by 10 bps. On Jun. 30, rates on the three-month paper issued by NBFCs were at 6.25-6.45%, while those of the manufacturing companies were at 6.18-6.38%. 

 

"With the change in the MPC's stance, it's now clear that the bar for any further rate cuts is set very high," said Laukik Bagwe, head of fixed income at ITI Mutual Fund. "As a result, investors are reluctant to increase their duration exposure—they're content to keep it low or to book profits whenever possible. That's why we've seen a 10 basis point movement in yields."

 

While the 50-bps rate cut was a positive for the market, the stance change from 'withdrawal of accommodation' to 'neutral' adversely affected the sentiment, limiting the fall in rates, dealers said. A shift in stance took the market by surprise, which was expecting a deeper cut in rates and a terminal repo rate of at least 5.25%. Currently, the repo rate is at 5.50%. 

 

Moreover, high maturity in June and redemption pressure from mutual funds towards the end of the month also resulted in a rise in rates, dealers said. As the rates remained elevated, many entities chose to meet their funding requirements by borrowing through banks as they found it much cheaper, dealers said.

 

Following are details of CP and CD issued in June, as per data sourced from the Clearing Corp. of India and compiled by Informist. Amounts in INR billion:

 

CD	June 2025	May 2025	On-month%	June 2024	On-year%
State-owned banks	846.6	491.45	72.27	1,020.65	(-)17.05
Private Sector Banks	441.1	170.75	158.33	416.6	5.88
Others	20	140.5	(-)85.77	50	(-)60.00
Foreign Banks	1	3.25	(-)69.23	-	-
Total	1308.7	805.95	62.38	1487.25	(-)12.01

 

CP	June 2025	May 2025	On-month%	June 2024	On-year%
Non-banking finance companies	893.65	780.79	14.45	1134.59	(-)21.24
Manufacturing	627.89	419.78	49.58	396.11	58.51
Housing Finance	55.75	84.00	(-)33.63	98.75	(-)43.54
REIT	14.15	-	-	-	-
Total	1591.44	1,284.57	23.89	1629.45	(-)2.33

 

End

 

Edited by Akul Nishant Akhoury

 

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