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Informist, Tuesday, Jul. 8, 2025

By Vidhushi RajPurohit

MUMBAI – The supply of short-term debt securities fell sharply on Tuesday due to the prevailing high surplus liquidity in the banking system, dealers said. The secondary market activity was also muted as arbitrage trading was limited because of low market rates, they said.

In the primary market, four companies tapped the commercial paper market to raise INR 12.35 billion, sharply lower than the INR 192 billion raised Monday. Tata Power Co. was the largest issuer, raising INR 5 billion through a three-month CP at 5.83%. 

HDFC Bank was the sole issuer of certificates of deposit, raising INR 20 billion through a three-month paper at 5.75%. Dealers said the bank was likely tapping the market to roll over its upcoming maturities, which currently stand at INR 73.50 billion. On Monday, the private sector bank raised INR 17 billion at 6.19% through a paper maturing in April. 

"The liquidity is really high, and at the quarter start, there is not much credit offtake," a dealer at a state-owned bank said. "Those who are coming to the market are mostly doing because they have papers they need to roll over."

The system liquidity remained in a surplus of above INR 3 trillion despite outflows for tax deducted at source and excise duty payouts, which were estimated at around INR 600 billion. The RBI Monday net absorbed INR 3.44 trillion from the banking system, down from INR 4.09 trillion on Sunday. Despite the high surplus funds, banks refrained from buying papers in the secondary debt market as the rates have fallen, which has shrunk the difference between the repo rate and the rates on certificates of deposit, dealers said. Currently, the spread between the repo rate and the three-month CD rate stands at around 29 basis points, down from 50 bps at the end of June. 

"The market is down because there is so much liquidity and the rates are down so the scope of arbitrage is not there," a dealer at another state-owned bank said. "Banks are also now only on the selling side (in the secondary market) and some buying is there but that is only from fund houses."

The turnover of CDs in the secondary market was INR 24.95 billion, down from INR 39.40 billion Monday. The total trades in commercial paper in the secondary market were at INR 46.00 billion, compared to INR 44.10 billion Monday. 

--Primary market

* UltraTech Cement, Tata Power, Tata Projects, and L&T Finance raised funds through CPs.

* HDFC Bank raised funds through CDs.

--Secondary market

* Bank of Baroda's CD maturing Wednesday was traded four times at a weighted average yield of 5.2202%.

* Small Industries Development Bank of India's CP maturing Wednesday was traded four times at a weighted average yield of 5.2568%.

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

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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