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Informist, Thursday, Oct. 9, 2025

 

MUMBAI – The rates in India's largest and most active money market, which includes both banks and mutual funds among other financial institutions, showed signs of liquidity strain Thursday amid a string of investments in initial public offerings lined up this week. The overnight triparty repo rate jumped out of the Reserve Bank of India's liquidity adjustment facility corridor earlier in the day and hit a high of 6.05%. It ended near the upper end of the corridor, at the Marginal Standing Facility rate of 5.75%.

 

Headlining the rush to listings is Tata Capital, whose issue closed Wednesday, and an offering from LG Electronics' local arm, open till Thursday. These offers, already worth around INR 250 billion, were subscribed multifold. These funds are held in escrow until shares are allotted to successful bidders, locking up the cash with co-ordinating banks. 

 

Several large mutual funds are anchor investors in these marquee issuances, and have turned borrowers in the overnight money markets. The liquidity tightness was exacerbated by the Reserve Bank of India draining INR 468.60 billion through an overnight variable rate reverse repo auction. With borrowers far outstripping lenders, money market rates spiked. The weighted average triparty repo rate was 5.55% Thursday against 5.27% Tuesday. Adding to that was banking system liquidity falling from the previous day.

 

"The liquidity is adequate, but askew. The banks who have collected the funds for the IPO are sitting flush on cash, while the investing parties – other banks and mutual funds – are desperately looking to cover their (liquidity) needs," the head of asset-liability management at a private-sector bank said. "The RBI would have calculated on a systemic level, and now it looks like banks have mismanaged their needs."

 

The weighted average call rate, which tracks the interbank cost of cash, also rose to 5.50% from 5.35% Wednesday. This was in line with the policy repo rate of 5.50%, for the first time this week. The weighted average basket repo rates, where financial institutions raise cash against their bond holdings, rose above the repo rate as well. Some banks even rushed to trade in their dollars for rupees, and the implied "cash-tom" rate – the premium on the overnight dollar-rupee swap – rose to above 11% at its peak Thursday.

 

Traders expect money market rates to cool Friday as the Tata Capital issue gets allotted Thursday, freeing up some investors' cash and reducing the load on mutual funds. Traders also expect better liquidity management from banks, even as the RBI is expected to announce another VRRR auction after 1900 IST, Thursday. The main seven-day operation of the central bank is due Friday. 

 

"There are a lot of factors governing liquidity, including the RBI's own FX (foreign exchange) management," a treasury official at a state-owned bank said. "The liquidity surplus this month has actually not gone as much in surplus as usual because of things like FX and then usual tax payments to the government have happened." The RBI absorbed INR 1.29 trillion worth of liquidity from the banking system Wednesday--a proxy for the systemic liquidity surplus--lower than INR 1.48 trillion on Tuesday.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

Edited by Tanima Banerjee

 

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