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Illustration: binay sinha
The increased issuances of commercial paper (CP) and certificate of deposit (CD) are likely to keep money market rates moderately elevated, following a decline of 40-60 basis points over the three months ending August, IndiaRatings said in a report.
Money market rates have remained stable this month, with moderate fluctuations of 5-10 basis points, driven by system liquidity volatility caused by quarterly advance corporate tax payments and GST payments.
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According to the report, fund-raising by state-owned banks through CDs has gone up significantly, with these banks issuing Rs 97,900 crore worth of CDs in the month of September (as of September 24), up from Rs 56,400 crore in August. Even private sector banks have shown strong momentum in issuing such instruments. These banks have issued Rs 27,000 crore worth of CDs, compared to Rs 23,900 crore in the previous month.
This surge in CD issuances is driven by quarter-end reporting, as funds raised through CDs are included under aggregate deposits, the report highlighted. Additionally, banks are increasingly taking the CD route to raise funds to support their credit growth since deposit growth has been sluggish, with the Reserve Bank of India (RBI) repeatedly asking the banks to adopt innovative ways to mobilise deposits so that the credit-deposit gap gets narrower.
Concurrently, CP issuances have gained traction ahead of the festive season, with non-bank finance companies (NBFCs) actively issuing CPs due to favourable financing conditions and increased demand for liability funding.
Total CP issuances remained stable, with corporates issuing Rs 34,800 crore as of September 24, compared to Rs 52,400 crore in August, while NBFCs and housing finance companies issued Rs 61,200 crore, up from Rs 53,700 crore in August.
Meanwhile, domestic banking system liquidity remained in surplus mode through September 2024 (up to September 24), except for a few days due to quarterly advance corporate tax payments followed by monthly GST payments in the third week.
The average daily net liquidity adjustment facility (LAF) balance stayed above Rs 1.5 trillion surplus during this period. The liquidity has been further bolstered by strong foreign portfolio investment (FPI) inflows, totalling $10.10 billion in September 2024 (up to September 24). Since June 2024, net FPI inflows into the equity and debt markets have reached $23.9 billion. Liquidity was in a surplus of Rs 44,337 crore, the latest RBI data shows.
First Published: Sep 27 2024 | 6:20 PM IS
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