Banks continue to refinance CDs as rates remain low

Banks continued to issue six-month certificates of deposit (CDs) as March maturity papers were offered 70-80 basis points below compared with April maturity CDs, dealers said.

“Banks are only keen on issuing six-month CDs due to the lower rates it offers,” said a dealer with a state-owned bank.

Banks were also mainly refinancing their existing CDs at lower rates on views that the rates could inch up by September end, dealers said.

Banks and companies will make payments towards the second instalment of corporate advance taxes by Tuesday.

According to dealers, around Rs 35,000-40,000 crore will go out of the system for corporate advance payments.

Mutual funds were also keen on investing in papers maturing below six-months as they received inflows in their liquid plus schemes, dealers said.

“Demand from mutual funds is only in shorter tenure papers, so banks don’t have much choice but to issue such papers,” said a dealer with a mutual fund.

Today, 3-month CDs were quoted at 3.60-3.90 per cent, unchanged from Wednesday’s levels, while 3-month commercial papers (CPs) were quoted at 4.00-4.25 per cent.

According to dealers, Steel Authority of India placed Rs 1,500 crore worth of CPs. The company offers 4.60 per cent on 168- day CPs, 4.49 per cent on 178 and 183-day CPs each, and 4.59 per cent on 184-day CPs.

Secondary market
Mutual funds refrained from any major investment in this segment as the redemption from banks and companies was limited, dealers said.

“A few mutual funds are trading in the secondary market for a long time mainly to book profits,” said a dealer with a mutual fund.

Call ends steady
Call money rate ended steady today because liquidity in the banking system was ample for banks to meet their daily reserve needs, dealers said.

Today, the one-day call rate ended at 3.25-3.30 per cent, compared with 3.20-3.30 per cent on Wednesday.

CBLOs ended at a weighted average rate of 2.72 per cent, compared with Wednesday’s close of 2.79 per cent.

CBLOs had risen to a high of 3.29 per cent intraday due to a sudden rise in demand for funds in late trade.

“In late trade, demand rose suddenly and supply was less because mutual funds cannot lend in the CBLOs market after 2:30 PM (1430 IST), so the rate also rose,” said a dealer at a private bank.

Demand in the call money market was moderate today because banks have already met most of their reserve needs for the current reporting fortnight.

Today, Reserve Bank of India absorbed Rs 1.32 lakh crore through its reverse repo tender, compared with Rs 1.20 lakh crore on Wednesday.