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| CD issuances up on prospect of rise in rates |
| Newswire18 / Mumbai Sep 03, 2009, 00:37 IST |
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Issuances of certificates of deposits (CDs) by banks continued to remain high for refinance of papers that mature in September, and on views that rates were likely to rise next week, dealers said. Today, around Rs 2,525 crore of CDs and commercial papers (CPs) were placed in the market, compared with Rs 1,200 crore on Tuesday.
Banks mostly issued CDs maturing beyond March to maintain their deposit base for year-end accounts closure. Today, banks were the major investors in the primary market, as against mutual funds, as liquidity was ample in the banking system.
“The rates have risen by 20-25 basis points since a month, and so banks are preferring to issue longer tenure papers. Banks are also refinancing CDs as the rates are expected to rise next week as the liquidity may reduce,” said a dealer with a state-owned bank.
Mutual funds, on the other hand, were cautious on their investments expecting redemption from banks and companies in September for payment of corporate advance tax, causing rates for shorter tenure papers to rise.
According to market participants, around Rs 35,000-40,000 crore will move out of the system for payment towards second instalment of corporate advance tax.
Mutual funds today invested in HPCL’s six-month CPs on inflows in liquid plus schemes, dealers said.
Today, three-month CDs were quoted at 3.80-4 per cent, unchanged from Monday, whereas three-month commercial papers were quoted at 4.30-4.50 per cent, flat from Monday’s levels.
Secondary market Mutual funds continued to trade in the secondary market on the view rates would rise next week, dealers said.
“Mutual funds have been trading significantly in the secondary markets since a few weeks mainly to book profits,” said a dealer with a mutual fund.
State-owned banks’ April maturity CDs were dealt at 5.20-5.25 per cent today.
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