Banks queue up for CDs

Issuance of certificates of deposit(CDs) rose On Monday because banks rushed to raise funds noting the sharp fall in rates of such papers since last week. CD rates have fallen by over 75 basis points since last week in the 3-month segment.

Banks placed over Rs 1,400 crore of CDs across various tenures, compared with just Rs 25 crore on Friday and Rs 500 crore on Wednesday.Markets were shut on Thursday because of terror attacks in the city since late Wednesday.

Fund managers expect Reserve Bank of India to cut interest rates by 25-50 basis points and in the event of such a cut, rates of short-term papers may fall further.

Rates of one-year certificates of deposit fell by 25 bps On Monday, which lured banks to up issuance, dealers said.

Three-month CPs were quoted at 12-13 per cent, compared with 13-14 per cent on Wednesday, while three-month CDs were at 8.30-8.75 per cent versus 9.00-9.25 per cent.

Secondary market
Rates fell here too tracking the fall in primary market, dealers said. But “volumes were slightly low because most of the mutual funds were looking at the primary market,” said a dealer at a mutual fund. CDs maturing in December were dealt in the band of 7.25-7.75 per cent, compared with 7.50-8.00 per cent on Wednesday.