Short-term debt: Banks issue CDs

Banks continued to issue certificates of deposit (CDs) on Monday to build their deposit base targets and on expectation that short-term rates might rise in coming weeks, dealers said.

On Monday, short-term money market instruments worth around Rs 3,165 crore were placed as against Rs 3,500 crore on Friday. Fund houses have money in their liquid and liquid plus schemes and so they were investing in short-term papers, dealers said. There are expectations that rates on short-term money market instruments might rise in coming weeks as banks issue CDs to refinance their existing papers and to enhance their balance sheets.

Rates on one-year CDs rose five to 10 basis points on Monday because demand from investors was limited to papers maturing in up to three months. Three-month CDs were quoted at seven to 7.2 per cent as against 7.05-7.25 per cent on Friday, while three-month commercial papers were quoted at 7.4-7.6 per cent.