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Yesterday, banks had raised around Rs 1,800 crore by issuing two and three month papers, down from about Rs 4,000 crore raised last Friday. Today, there was no such short term issuances. Banks have raised resources by issuing six-month and one-year paper.
The finance ministry had asked the public sector banks to limit their reliance on CD to 10 per cent of their total deposit, while the combined cap on bulk deposits and CDs were kept at 15 per cent. The ministry's directive came after banks scrambled for cash in the last month of the previous financial year to meet their year-end target, which resulted in rates going through the roof. Three month CD rates have gone past 12 per cent in the last fortnight of March last year.
This year, it's a different scene. The liquidity in the banking system eased significantly this week on the back of increased government spending. This has helped the rates ease by 25-30 basis points (bps) on short-term deposits like two-month and three-month CDs.
"Not just CD, even CP issuances have been coming down as most of the banks as well as companies are done with their short-term borrowings. These banks and firms had borrowed a lot in December-January, due to which now they do not need refinance. We would see them borrowing again in next fiscal," said an issue arranger.
According to dealers, two and three month CD rates, which were around 9.60 per cent last Friday, has eased to around 9.25-9.30 per cent. Yesterday, the State Bank of Patiala raised Rs 100 crore at 9.26 per cent, while the Oriental Bank of Commerce raised Rs 500 crore of three-month maturity at 9.30 per cent. Rates on one year CDs have also eased by 20-25 bps in the past one week.
The short-term rates have fallen as liquidity tightness eased following government increasing its spending. During the last week of February, government balance with Reserve Bank of India (RBI) was to the tune of Rs 1 lakh crore.
Following the increased government spending, average daily borrowing by banks from the liquidity adjustment facility in March has come down to Rs 60,000 crore. Today, however, banks have borrowed about Rs 93,000 crore as this was the last day of the reporting Friday.
According to banks, there could be some pressure on the short term rates as liquidity will be tight again due to corporate advance tax outflows next week. Bankers estimate Rs 80,000 crore will be drained out of the system due to advance tax outflows.
