Short-term debt: Rates on CDs up 10-15 bps

Rates on three-month certificates of deposit (CDs) rose 10-15 basis points as banks issued certificates of deposit to build their deposit base target, dealers said.

On Monday, short-term money market instruments worth around Rs 2,540 crore were placed as against Rs 1,500 crore on Friday.

“Banks usually issue CDs during the quarter-end to meet their deposit base targets and prop up their balance sheets,” said a dealer with a state-owned bank.

Mutual funds are also investing in short-term papers to avail of the higher rates these papers offer.

“Fund houses are keen on investing in three-month CDs as the spread between a three-month and one-year paper is 70-80 basis points,” said a dealer with a mutual fund.

The tight liquidity in the banking system also pushed up rates of short-term instruments.

The liquidity in the banking system was tight as could be seen from the bids received at the Reserve Bank of India’s (RBI’s) repo window on Monday. Banks parked Rs 68,135 crore at RBI’s repo window on Monday — the highest in two months, against Rs 37,230 crore on Friday.

Three-month CDs were quoted at 7.2-7.4 per cent as against 7.1-7.3 per cent on Friday, while three-month commercial papers (CPs) were quoted at 7.4-7.6 per cent, flat from the previous close.

Rates in the one-year segment stood at 7.9-8.1 per cent, flat from Friday.