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Informist, Thursday, Sept. 17, 2026

 

By Meera Nair

 

MUMBAI – Yields on certificates of deposit fell across key tenors after the US Federal Reserve's Federal Open Market Committee decision on rates, while yields on commercial paper moved in opposite directions, despite ample liquidity in the banking system, dealers said. The movements were broadly in line with market expectations after the FOMC decision, with domestic liquidity conditions continuing to have a stronger influence on the CD market than the Fed decision, dealers said.

 

AAA-rated three-month CD yields fell 5 basis points to 6.10-6.15% from 6.20% Wednesday, while six-month CD yields also declined 5 bps to 6.70-6.75% from 6.75-6.80% in the previous session. There were no trade in the one-year segment. The three-month and February segments were the most active in the CD market.

 

The decline in CD yields came amid comfortable banking system liquidity, which has reduced banks' immediate need to raise funds through CDs. The recent large mobilisation under Foreign Currency Non-Resident(Bank) deposits has also provided banks with an additional funding cushion, limiting their dependence on short-term market borrowings.

 

The RBI's net liquidity absorbed--a proxy for the banking system's liquidity surplus--was INR 7.38 trillion Wednesday, down from INR 9.85 trillion Tuesday. Cash balances with the RBI, however, rose to INR 8.16 trillion Wednesday from INR 8.01 trillion Tuesday. The RBI increased the size of its variable rate reverse repo auction to INR 3.0 trillion Thursday from INR 2.5 trillion Wednesday. The central bank accepted all INR 2.40 trillion of offers at the overnight VRRR auction, against the notified amount of INR 3 trillion. According to an Informist poll, the median estimate of 10 market participants was INR 2.34 trillion.

 

In the CP market, yields showed a mixed reaction. AAA-rated three-month CPs issued by non-banking financial companies rose 10 bps to 6.90-6.95% from 6.80-6.85% Wednesday, while six-month CP yields fell 10 bps to around 7.00% from 7.15%. There were no trade in the one-year segment.

 

"The Indian CD market is currently being influenced more by domestic liquidity than by the Fed decision in isolation. The large FCNR(B) mobilisation has given banks a significant funding cushion, reducing their immediate dependence on CDs. However, if surplus liquidity normalises while credit growth remains firm, CD issuance could pick up again," Imran Khan, director at EquiRize Securities, said.

 

The divergent movement in CP yields across tenors reflects differences in demand and supply conditions rather than a uniform reaction to the Fed outcome, dealers said. With liquidity remaining ample, market participants are likely to continue watching the RBI's liquidity operations and upcoming issuances for direction in short-term rates.

 

For investors, the key question is whether to retain the flexibility of shorter-tenor paper or lock in longer-term yields. In the current uncertain interest-rate environment, the maturity premium needs to adequately compensate investors for giving up that flexibility, Khan said, commenting on the CD market's movement after the FOMC meeting.

 

Primary issuances in the CP market fell to INR 110.55 billion from INR 120.17 billion Wednesday, according to CCIL data. Small Industries Development Bank of India, ICICI Securities Ltd., Motilal Oswal Financial Services, JSW Energy Ltd., Grasim Industries Ltd., Manappuram Finance Ltd. and Godrej Properties Ltd. were among the issuers.

 

SIDBI borrowed INR 50 billion through a 91-day CP at a weighted average yield of 6.24%, while ICICI Securities raised INR 9 billion through an 89-day CP at a yield of 7.07%. Motilal Oswal Financial Services raised a total of INR 9.5 billion through 39- and 91-day CPs at 7.25% and 7.32%, respectively. JSW Energy raised INR 6 billion at 6.65%, while Grasim Industries raised INR 5 billion at 6.13%.

 

"The CP market is likely to remain active, but investors are becoming more selective about tenor and credit quality. A hawkish Fed and the possibility of further global rate increases make shorter-tenor CP attractive because investors retain the flexibility to reinvest at potentially higher rates. For issuers, however, CP remains an important funding instrument, so the market is more likely to see tactical shortening of maturities than a broad postponement of issuance," Khan said.

 

"In the current environment, the key is not simply the absolute CP yield, but the compensation investors receive for credit, liquidity and maturity risk," he said.

 

In the CD market, HDFC Bank was the only issuer. HDFC Bank raised a total of INR 60.50 billion through two CDs at weighted average yields of 6.10% and 6.20%, respectively. In the secondary market, CD volumes declined sharply to INR 80.60 billion from INR 130.70 billion Wednesday, while CP volumes rose to INR 98.60 billion from INR 62.90 billion.

 

"Three-month levels are too high for both CDs and CPs. Banks have surplus cash currently, and they will not come with CD issuances at these high levels," a dealer from a brokerage firm said. "It's not like they are not looking for it, it's that they are not getting enough investor demand," the dealer said.

 

--Primary market

* HDFC Bank was the only CD issuer Thursday.

* Small Industries Development Bank of India, ICICI Securities Ltd., Motilal Oswal Financial Services, JSW Energy Ltd., Grasim Industries Ltd., Manappuram Finance Ltd., Godrej Properties Ltd. were among key CP issuers Thursday.  

 

--Secondary market

*Union Bank of India CD maturing Friday was traded three times at a weighted average yield of 4.99%.
* Export-Import Bank of India's CP maturing Dec. 14 was traded twice at a weighted average yield of 6.17%.

 

The following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, as detailed on CCIL's F-TRAC platform:

 

Certificates of deposit		Commercial paper
Thursday	Wednesday	Thursday	Wednesday
80.60	130.70	98.60	62.90

 

End

 

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

 

Edited by Akul Nishant Akhoury

 

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