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Informist, Tuesday, Sept. 22, 2026

 

By Meera Nair

 

MUMBAI – Yields on certificates of deposit eased in key short-term tenors Tuesday as surplus liquidity continued to support demand for money-market instruments, while commercial paper yields were mixed, dealers said.

 

AAA-rated three-month CD yields were quoted at 5.95-6.00%, the lowest level this month, compared with 6.08-6.10% Monday. Six-month CD yields were unchanged at 6.70-6.75%, while one-year CD yields were quoted at 7.40-7.50%.

 

"Banks are likely to become more active in CDs as the liquidity surplus comes down, but I would not call it an aggressive issuance cycle yet. The need for CDs will depend on individual banks' deposit growth, credit growth and liquidity position. The important change is that the cost of marginal funding is becoming more relevant. Banks that have strong deposit franchises may not need to pay up, whereas banks with faster credit growth or tighter liquidity may find CDs more attractive," Imran Khan, director of EquiRize, said.

 

"On the investor side, I would describe the market as selective rather than sitting entirely in cash. Investors still have substantial liquidity, but after the RBI's OMO sales, they are becoming more conscious of tenor and the opportunity to reinvest at higher rates. That is reflected in the fact that the one-month CD reference rate was around 5.56%, three-month CD around 6.16%, while the one-year CD rate was substantially higher at 7.58% on Sept. 21," Khan said.

 

AAA-rated three-month CP issued by non-banking finance companies were quoted around 6.80%, slightly up from 6.78% Monday, while six-month CP yields were unchanged at 7.10%. Yields in the one-year segment were around 7.70%.

 

"The short-term market has repriced meaningfully compared with the very easy-liquidity period earlier this month. As of Sept. 21, the broad three-month CP reference rate was around 6.18%, compared with 6.10% the previous day and 5.83% a year ago. The more important point is that the longer end is seeing a larger risk premium as investors assess the possibility of tighter liquidity and higher policy rates," Khan said.

 

The RBI's net liquidity absorbed — a proxy for the banking system's liquidity surplus — was INR 4.92 trillion Monday, the lowest level since Aug. 28 and sharply down from INR 6.05 trillion Sunday. Banking system liquidity fell by around INR 1.8 trillion Monday due to outflows for goods and services tax payments, dealers said.

 

"System liquidity has fallen by more than half from its peak — roughly from INR 11.16 trillion to around INR 4.92 trillion. That is substantial, and it has already made money market participants more sensitive to marginal funding costs," Khan said.

 

"Net liquidity is comfortable. We still have 4 lakh crore (INR 4 trillion) liquidity surplus, so they will continue with VRRR auctions, but the amount would be around 50,000-75,000 crores (INR 500 billion to INR 750 billion)," a dealer at a primary dealership said. Dealers expect the liquidity surplus in the banking system to reach INR 3.50 trillion to INR 4.00 trillion by the end of September, as major outflows for the month were completed.

 

At Tuesday's overnight INR-750-billion VRRR auction, the RBI accepted all INR 719.71 billion of offers at a cut-off rate of 5.24%. After the VRRR auction results, overnight borrowing rates fell.  

 

Primary issuances in the commercial paper market fell sharply to INR 46.84 billion Tuesday from INR 136.02 billion Monday, according to Clearing Corp. of India Ltd. data. Kotak Securities, NLC India, ICICI Securities, Bajaj Financial Securities, SEIL Energy India, and Chennai Petroleum Corp. were among the issuers.

 

Kotak Securities borrowed a total of INR 11.25 billion through four CPs at weighted average yields of 6.65-6.99%, while NLC India raised INR 5 billion through a 90-day CP at a yield of 6.40%. ICICI Securities raised a total of INR 3.75 billion through 59- and 147-day CPs at 6.90% and 7.15%, respectively. Bajaj Financial Securities raised a total of INR 4 billion through two CPs, both at a yield of 7.11%.

 

"Companies with genuine working-capital requirements will continue to issue fresh CP, while issuers approaching maturity dates will naturally use the market for refinancing. The current environment makes refinancing more expensive at the margin, but CP remains attractive for highly rated issuers because it can still be a competitive source of short-term funding," Khan said.

 

"September-end and early-October maturities are naturally an important refinancing window because a number of 90-day CPs issued around June-July come up for redemption. The market therefore needs to absorb both redemptions and fresh issuance. But I would not characterise the maturity concentration as a systemic problem. The key variable is how much of the maturing paper gets rolled over and how much gets repaid from internal liquidity. The fact that CP continues to be actively issued suggests the market is functioning normally; the question is increasingly about pricing rather than availability of funding," Khan said.

 

The tone of the short-term debt market has changed following the RBI's OMO sales, Khan said. "The first INR 500-billion OMO received bids of around INR 665.90 billion, and the second INR 250-billion tranche received bids of nearly INR 850 billion. That indicates that there is still considerable demand for high-quality securities. For money-market instruments, this suggests investors are becoming more selective about where they deploy liquidity. They are not withdrawing from short-term debt; rather, they are looking more closely at credit spread, tenor and liquidity. I would therefore characterise the impact as a change in pricing discipline rather than a collapse in demand," Khan said.

 

In the CD market, issuances rose sharply to INR 89.00 billion from INR 45 billion Monday, with IDBI Bank and HDFC Bank tapping the market. HDFC Bank raised INR 81.00 billion through two CDs at weighted average yields of 6.10% and 6.75%, respectively. IDBI Bank raised INR 8.00 billion at a weighted average yield of 5.80%.

 

In the secondary market, CD volumes fell sharply to INR 101.30 billion from INR 122.65 billion Monday. In contrast, CP volumes rose slightly to INR 74.85 billion from INR 72.65 billion Monday.

 

In the coming days, money-market yields are expected to remain rangebound or ease, a dealer at a brokerage firm said.

 

--Primary market

* IDBI Bank and HDFC Bank issued CDs Tuesday.

* Kotak Securities, NLC India, ICICI Securities, Bajaj Financial Securities, Seil Energy India, and Chennai Petroleum Corp. were among the CP issuers Tuesday.  

 

--Secondary market

* Union Bank of India's CD maturing Wednesday was traded twice at a weighted average yield of 5.29%.
* NTPC's CP maturing Wednesday was traded seven times at a weighted average yield of 5.20%.

 

The following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, as detailed on CCIL's F-TRAC platform:

 

Certificates of deposit		Commercial paper
Tuesday	Monday	Tuesday	Monday
101.30	122.65	74.85	72.65

 

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

 

Edited by Saji Geroge Titus

 

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