Three-month commercial paper yields surged 90 basis points this year to 10.73%, while similar rates in China slid 77 basis points and were unchanged in the US.
Lenders in India borrowed R1.3 lakh crore on an average every day from the Reserve Bank of India this quarter to meet fund shortages, more than twice the maximum of R60,000 crore favoured by the RBI.
A two-month rally in the countrys benchmark bonds has slowed after the government boosted its borrowing programme for the fiscal year to a level that is 23% higher than planned. Money-market rates will trend higher until policy makers cut borrowing costs, according to Peerless Mutual Fund and Federal Bank.
The surge in commercial-paper rates is a result of the government crowding out the debt market following the increase in its borrowing program, said Krishnamurthy Harihar, a Mumbai-based treasurer at FirstRand, a unit of South Africas second-largest banking group. The rate is likely to be sticky until the RBI injects liquidity by reducing banks reserve requirements.
HDFC, the countrys largest mortgage lender, sold three-month commercial paper on February 22 at 10.55%, 135 basis points higher than in July when it raised similar-maturity debt. Apollo Tyres borrowed for 90 days at 10.95% on February 17, about 68 basis points higher than what it paid a month earlier.
The cash crunch worsened after the finance ministry revised its borrowing plan for the 12 months through March on December 30. The government said that day it was pushing up its borrowing target to R5.1 lakh crore, compared with the R4.17 lakh crore it had outlined before the start of the fiscal year.
Banks sought R1.3 lakh crore on average per day from the RBI in 2012, about 8% higher than in December, according to RBI data. The call money rate, at which banks borrow from one another, was 8.95% on Monday. The rate has more than doubled from last years low of 3.5% touched on June 30. The yield on the benchmark 8.79% securities due November 2021 was little changed at 8.23% on Monday, the highest level since February 9. The spread between those notes and similar-maturity US treasuries has widened to 624 basis points from last years low of 438 basis points.