Rates on CDs up 5-10 bps on shortage of liquidity

Published: January 2, 2019 2:07 AM

The average liquidity deficit in the week ended December 28 was `1.6 lakh crore, higher than the average liquidity deficit of Rs 1.49 lakh crore in the previous week.

Utsav Saxena

Rates on Certificates of Deposit (CDs) maturing in three months have increased by 5-10 basis points mainly due to a shortage of liquidity and were quoted in the range of 6.95-7.05%.

The average liquidity deficit in the week ended December 28 was `1.6 lakh crore, higher than the average liquidity deficit of Rs 1.49 lakh crore in the previous week.

On the other hand, issuances of CDs have been high in the past week mainly because liquidity deficit in the banking system is on a two-year high. The deficit is estimated to be around `1.6 lakh crore. Canara Bank and HDFC Bank on Tuesday raised Rs 3,800 crore and Rs 419 crore, respectively.
Companies continue to approach the Commercial Paper (CP) market with National Bank for Agriculture and Rural Development (Nabard) and Hindustan Petroleum (HPCL) tapping investors for Rs 2,500 crore and Rs 2,000 crore, respectively, on Monday.

The amount raised is considerably higher than the total of Rs 1,250 crore raised on Friday. Rates on two-month CPs of non-banking finance companies (NBFCs) have declined by 25-50 basis points in the past month as liquidity concerns in the wake of IL&FS debacle have eased somewhat.

The rolled over or redeemed CPs worth Rs 1.5 lakh crore in November have given investors confidence, market participants said.

Rates on two-month CPs of triple AAA NBFCs were quoted in the range of 7.35-7.45%, while rates for the manufacturing companies have been stable and were quoted in the range of 7.10-7.25% for AAA companies. CPs in September and October were quoted in the range of 6.72%-17.49% and 6.44%-15.79%, respectively, according to the RBI monthly bulletin.

According to dealers, rates on short-term debt instrument rates will likely be in the similar range in the next few days. However, CPs with maturity in April and beyond may fetch higher rates.

“CP issuances have been before Monday mainly because companies have already raised funds earlier in the month keeping the holiday period in mind. Most of the CPs issued in this period have been by manufacturing companies to meet their working capital requirements”, said a dealer.

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