Foreign Banks Rush For Gilts

With most of the nationalised banks turning sellers, the foreign banks have stepped into the debt market to make a quick buck and debt market activity has picked up.

Treasury heads with foreign banks said they were not lending their money to the corporate sector but were, instead, deploying the funds in the short term securities.

"We are able to secure a better spread by investing in the securities instead of lending to the corporate sector," an official in a leading foreign bank said.

Nationalised banks hold the view that the foreign banks are entering the debt market with the intention of speculating.

"They want to book profits as they are expecting a cash reserve ratio (CRR) cut in the busy season credit policy.

The foreign banks are of the view that a cut in the CRR will see a jump in the prices of securities and they will be able to book good profits," a banker said.

Treasury heads in foreign banks said returns from investing in the short term papers were much more than that in the prevailing call money market.

"At present, the returns on the short term central government securities are better than the call money rates. So it is better to deploy our assets where we get better returns," an official with a foreign bank said.

As a result of the growing demand , the prices of the short-term securities continued to rise. The price of the 13.50 per cent central government paper maturing in 1997 rose by 10 paise and was traded for Rs 35 crore at a yield of Rs 100.64.

Another security which registered a similar jump in price was the 13.50 per cent paper maturing in 1998. The price of the security rose to Rs 101.63 from Rs 101.51 on Tuesday. A Rs 10 crore deal was struck in the security at 13.36 per cent. On Tuesday, the security was traded at 13.43#include virtual="/incs/bottom.inc"-->