Informist, Wednesday, Sep 22, 2021

By Vishal Sangani

MUMBAI – Rates on commercial papers rose today because surplus liquidity in the banking system narrowed amid low demand from mutual funds, dealers said.

Liquidity in the banking system is estimated to be in a surplus of over 6.75 trln rupees as against 8.39 trln rupees last week.

The surplus liquidity sharply narrowed due to outflows on account of advance tax payments for Jul-Sep and payments for goods and services tax.

Rates on three-month CPs of non-bank finance companies were up at 3.70-3.95% as against 3.55-3.70% on Tuesday, and those on papers of manufacturing companies were at 3.45-3.60% compared with 3.40-3.55% previous close.

Rates on short-term debt papers also rose due to active liquidity management by the Reserve Bank of India.

To take out excess liquidity from the system, the central bank had on Tuesday conducted seven- and three-day variable rate reverse repo auctions, which saw banks park the entire notified amount of 1.50 trln rupees.

On Tuesday, Informist had reported that the RBI had no intention of tightening liquidity conditions, and that it plans to introduce variable rate reverse repos of smaller tenures to modulate liquidity in the system as per market feedback.

In a recent meeting with market participants, the RBI was urged to manage the excess liquidity in the system, with one suggestion being shorter tenor variable rate reverse repos.

So far, the RBI has drained 5.00 trln rupees through multiple variable rate reverse repo auctions.

Demand from some mutual funds has slowed down as they are facing redemption pressure, which usually happens during the end of every quarter.

Companies usually park their money in liquid schemes to meet their short-term fund requirements, instead of leaving cash idle, resulting in sharp inflows into and outflows from the category on a cyclical basis.

Today, rates on three-month certificates of deposit were quoted at 3.35-3.50%.

IDFC First Bank was the lone issuer of CDs today, raising 5 bln rupees through papers maturing in three months at 3.48%, dealers said.

Supply of CDs by banks in the primary market remained subdued due to surplus liquidity in the banking system and low credit offtake.

Usually, issuances of CDs surge at the end of a quarter as banks borrow funds to meet their requirements and to disburse short-term loans to shore up balance sheets.

Loan growth remained muted due to lack of demand for big-ticket loans from corporates, and as banks continued to be cautious in anticipation of rising asset quality stress due to the COVID-19 pandemic.

So far today, CPs aggregating 6.00 bln rupees have been issued, as against 5.25 bln rupees sold on Tuesday. Hero Fincorp was the major issuer, raising 4.00 bln rupees through papers maturing in three months at 3.73%.

--Primary market

* ICICI Securities and Hero Fincorp raised funds through CPs.

--Secondary market

* Axis Bank's CD maturing on Feb 10, 2022 was dealt two times at a weighted average yield of 3.5500%.

* Indian Oil Corp's CP maturing on Sep 28 was dealt two times at a weighted average yield of 3.3584%.

Following are volumes at 1530 IST in the secondary market for short-term debt, in bln rupees, as detailed by the Clearing Corp of India's F-TRAC platform:

NOTE: Details of the deals have been received from market sources.

End

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

Edited by Pranav S. Joshi

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