Banks issue CDs to meet year-end deposit targets

Banks continued to issue certificates of deposit (CDs) today to meet their year-end deposit targets, while demand from mutual funds curtailed rates from rising further, dealers said. Today, banks placed around Rs 2,600 crore of CDs, compared with Rs 1,600 crore on Friday.

"Banks are still preferring to issue CDs to meet their deposit base requirement. Many CDs are also maturing this month, so most banks are re-issuing their CDs," said a dealer with a state-owned bank.

Mutual funds were seen purchasing money market instruments today, in the belief that rates would stabilise at current levels, dealers said.

"Mutual funds invested in six-month papers today as they received limited inflows in their liquid schemes," said a dealer with a mutual fund. However, fund houses restricted purchases in one-year tenure and preferred to invest a small quantum in six-month CDs.

Most mutual funds are facing redemption in liquid schemes due to corporate advance tax payments and closure of the financial year on March 31. Most dealers expect outflows towards advance tax payment to be around Rs 25,000-27,500 crore.

Three-month CDs were quoted at 6.00-6.20 per cent, unchanged from Friday. Three-month commercial papers (CPs) were quoted flat at 9.40-9.55 per cent.