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| Banks' huge CD issuances push rates up by 20bps |
| Newswire18 / Mumbai Mar 18, 2009, 00:13 IST |
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Persistent issuance of certificates of deposit (CDs) by banks to shore up their deposit-base ahead of the year-end accounts closure kept volumes in the primary issuance market robust and pushed up rates On Tuesday.
On Thuesday, banks placed around Rs 4,000 crore of CDs, compared with Rs 2,600 crore on Monday. So far this month, banks have already placed around Rs 15,300 crore of CDs. Canara Bank’s one-year CDs were placed at 7.60 per cent compared with 7.50 per cent on Monday, while Punjab National Bank’s six-month CDs were placed at 7.30 per cent compared with 7.20 per cent.
“Most of the banks are issuing papers to ensure their deposit base. There is huge supply in the market while the demand is not rising proportionately,” said a dealer with a state-owned bank. However, most mutual funds were eager to invest in CDs on view that rates could fall in April, dealers said.
Typically in April, rates on CDs decline as the supply rush will subside and liquidity improves due to government expenditure. Three-month CDs were dealt at 6.50-6.80 per cent On Tuesday compared with 6.00-6.20 per cent on Monday. Three-month commercial papers were quoted flat at 9.40-9.55 per cent.
Volumes were subdued and mutual funds sold shorter-tenure papers in the secondary market and were purchasing papers in the primary market, dealers said.
Punjab National Bank’s July maturity CDs were dealt at 6.85 per cent On Tuesday. On Tuesday, CDs maturing in July were dealt at 6.70-6.80 per cent, unchanged from Monday.
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