Informist, Tuesday, Sep 28, 2021

By Vishal Sangani

MUMBAI – Rates on commercial papers of non-banking finance companies rose because of the higher-than-expected cutoff set by the Reserve Bank of India at the variable rate reverse repo auctions, dealers said.

The RBI conducted seven-day variable rate reverse repo auction, where it set cutoffs at 3.99%. A poll by Informist saw the cutoffs at 3.50%. Banks parked 1.97 trln rupees at a seven-day variable rate reverse repo auction as against the notified amount of 2.00 trln rupees.

Rates on three-month CPs of non-bank finance companies were increased to 3.85-4.05% as against 3.75-3.95% on Monday, and those on papers of manufacturing companies remained unchanged at 3.45-3.60%.

"There has been reluctance by state-owned banks to park money in VRRR since Friday due to end of the quarter, and others were demanding a higher rate to park their funds, but the RBI had the option to cancel the auction rather than setting the cutoff rate near repo rate," a dealer with a private bank said. "It has sort of spooked the market as to whether the RBI is sending a signal to bring overnight fixing higher or if it was just under-subscription that prompted them to set it higher."

"This is also being interpreted by some as a precursor to an imminent hike in reverse repo rate," the dealer added.

Rates also increased due to lower demand from mutual funds, dealers said.

Fund houses have parked funds in ultra short-term CPs of non-banking finance companies. They are also holding back investments to maintain liquidity to invest in such issuances in the coming days.
 
The initial public offering of Aditya Birla Sun Life Asset Management Co Ltd will open on Wednesday and close on Oct 1.

Fund houses typically invest in such papers of companies as they offer better yields in a shorter period.
 
Demand from some mutual funds has slowed down as they are facing redemption pressure, which usually happens during the end of every quarter.

Companies usually park their money in liquid schemes to meet their short-term fund requirements, instead of leaving cash idle, resulting in sharp inflows into and outflows from the category on a cyclical basis.

On the issuances side, supply of CPs rose today because companies tapped the market to roll over papers set to mature in the coming days and to meet fresh funding requirements. 

So far today, CPs aggregating 48.00 bln rupees were issued, as against 26.00 bln rupees sold on Monday. Bharat Petroleum Corp was the major issuer, raising 20.00 bln rupees at 3.40% through papers maturing on Oct 13.

IndusInd Bank was the lone issuer of certificates of deposit today, raising 5 bln rupees through papers maturing in three months at 3.53%, dealers said.

Supply of CDs by banks in the primary market remained subdued due to surplus liquidity in the banking system and low credit offtake.

End-of-the-quarter issuances of CDs typically surge as banks borrow to meet their funding requirements and disburse short-term loans to shore up their balance sheets.

Liquidity in the banking system is estimated to be in a surplus of about 7.20 trln rupees.

Rates on three-month CDs were quoted at 3.30-3.45%.

–Primary market

* Aditya Birla Finance, Mangalore Refinery and Petrochemicals, Can Fin Homes, Bharat Petroleum Corp, National Fertilizers and Aditya Birla Housing Finance raised funds through CPs.

–Secondary market

* IDFC First Bank's CD maturing on Dec 8 was dealt three times at a weighted average yield of 3.4801%

* Mangalore Refinery and Petrochemicals' CP maturing on Thursday was dealt two times at a weighted average yield of 3.3951%

Following are volumes at 1530 IST in the secondary market for short-term debt, in bln rupees, as detailed by the Clearing Corp of India's F-TRAC platform:

NOTE: Details of the deals have been received from market sources.

End

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

Edited by Patricia Hou

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