Informist, Friday, Feb 2, 2024
By Abhinaba Saha
MUMBAI – Banks continued to raise funds through certificates of deposit today after a fall in rates on Thursday, dealers said. Fundraising through CDs has picked up as banks flocked to the short-term debt market to roll over existing debt.
So far today, CDs aggregating 62.75 bln rupees were issued against 198 bln rupees on Thursday. Punjab National Bank was the largest issuer today, raising a total of 41 bln rupees through CDs. The state-owned bank had raised 51 bln rupees through papers maturing in three months at a rate of 7.82% on Thursday, while today, it raised 41 bln rupees through papers maturing in three months at 7.80%.
“Banks have a lot of upcoming maturities. So they are going to issue at all levels throughout this quarter. There is also a lot of demand (from investors) to replace existing maturities,” a fund manager at a small mutual fund house said.
Positive sentiment in the market following a lower-than-expected fiscal deficit target announced in the Interim Budget for 2024-25 (Apr-Mar) led to a fall in rates on short-term debt instruments by 5-7 basis points on Thursday.
After falling on Thursday, rates on short-term debt instruments remained flat today. Rates on three-month commercial papers issued by non-banking finance companies were at 8.45-8.63% today. Rates on papers of similar maturity issued by manufacturing companies were also steady at 7.85-8.03%. Rates on three-month CDs were at 7.74-7.94%.
Fundraising through commercial papers fell today due to low funding requirements of corporates and non-banking finance companies, dealers said. So far today, CPs aggregating 8.6 bln rupees were issued against 40.2 bln rupees on Thursday.
Money market traders now await the Reserve Bank of India’s Monetary Policy Committee meeting next week.
“We are also heading into policy week, so overall activity will be lacklustre and a gradual one till next week,” a fund manager at a large mutual fund house said.
Most market participants expect the rate setting panel to stand pat on the repo rate of 6.50%. However, the commentary on liquidity may nudge the short-term debt market.
On Thursday, the liquidity deficit in the banking system was at 2.22 trln rupees, against 2.29 trln rupees on Wednesday, according to data from the Reserve Bank of India. The deficit may narrow further in the coming days due to inflows on account of the government’s month-end spending in the form of salaries and pension payouts, dealers said.
The RBI’s announcement of holding a variable rate reverse repo auction of 500 bln rupees had little impact on the short-term debt market owing to the small quantum of the auction, dealers said.
“There are a lot of outflows in the next few days, so banks will always require some buffer, and they will always keep cash in hand and not keep everything in VRRR,” the fund manager with the small mutual fund house said.
–Primary market
* HDFC Securities, Axis Securities, and Motilal Oswal Finvest raised funds through CPs
* Punjab National Bank, HDFC Bank, and Bank of Baroda, raised funds through CDs.
–Secondary market
* Bank of Baroda’s CD maturing on Feb 23 was dealt 6 times at a weighted average yield of 7.2636%
* Small Industries Development Bank of India’s CP maturing on Feb 15 was dealt twice at a weighted average yield of 7.2800%
At 1700 IST, the following were the volumes, in bln rupees, in the secondary market for short-term debt, as detailed by the Clearing Corp of India’s F-TRAC platform:
End
Edited by Avishek Dutta
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