Informist, Wednesday, Aug 10, 2022
By Vishal Sangani
MUMBAI – Borrowing by banks through certificates of deposit in July fell 27.5% from the previous month that had seen heavy issuances because of the quarter-end rush for funds, dealers said.
Banks raised 512.40 bln rupees through short-term debt last month, as against 57.20 bln in July 2021.
State-owned banks were the top CD issuers in July, accounting for about 74% of the total issuances.
Banks raised funds because of a liquidity crunch in the banking system and a pick-up in demand for small-ticket loans, working capital loans, as well as retail loans.
Surplus liquidity fell sharply last month due to robust indirect tax outflows, lack of government spending, the RBI's operations in the foreign exchange market, and large borrowing by the government.
The liquidity surplus in the banking system shrank to around 500 bln rupees at July-end, against 2.9 trln rupees on Jul 1. The surplus liquidity narrowed to the lowest level since September 2019.
Some banks also tapped the short-term debt market to roll over papers which were set to mature.
Among state-owned banks, Canara Bank topped the list of CD issuers, raising 129.00 bln rupees during the month. It was followed by State Bank of India with issuances worth 100.00 bln rupees.
The last time SBI tapped the CD market was in March. In February, the lender had tapped the short-term debt market for the first time in a decade, according to data compiled by Informist.
In the private sector, HDFC Bank was the largest issuer, raising 41.75 bln rupees.
COMMERCIAL PAPERS
The quantum of commercial papers issuances declined 21.5% in July from the previous month as fundraising by manufacturing companies slowed down after heavy borrowing at the end of the previous quarter.
CPs worth 946.24 bln rupees were issued in July, as against 1.03 trln rupees in the year-ago period. (details below)
Supply of fresh short-term debt papers by manufacturing companies fell 20% in July from a month ago.
The supply of CPs issued by non-bank lenders and housing finance companies also decline. These borrowers have been moving towards bank loans to meet their funding requirement, and also remained sideline due to higher rates in the primary market.
Banking credit to non-banking finance companies rose 21.1% on year in June, against 20.6% in May, as per data by the RBI.
Indian Oil Corp, which raised 89.25 bln rupees, emerged as the top issuer of CPs in July. It was followed by Hindustan Petroleum Corp with issuances worth 72.40 bln rupees. Other major issuers included Tata Steel, Reliance Retail Ventures, National Bank for Agriculture and Rural Development and Small Industries Development Bank of India.
RATES
Rates on short-term debt papers surged last month by 45-60 basis points because of the sharp decline in the surplus liquidity in the banking system and also a rise in yields on treasury-bills.
On a monthly basis, rates on CDs increased 60 bps in July, while those on CPs were up 45-55 bps.
Yield on the 91-day T-bill rose 48 basis points to close at 5.62% in July.
Usually, short-term debt papers are issued at a premium over the yield of Treasury bills.
As of Jul 31, rates on three-month CPs of manufacturing companies were at 5.90-6.10% compared with 5.35-5.65% on Jun 30, and those on CPs of non-banking financial companies were at 6.10-6.25% against 5.55-5.80% a month ago.
Rates on three-month CDs were up at 5.80-6.05% as on Jul 31 from 5.20-5.45% a month ago.
| CPs | Jul | Jun | MoM change in % | Jul-21 | YoY change in % |
| Housing finance companies | 49.25 | 125.35 | (-)60.71 | 88.50 | (-)44.35 |
| Non-banking finance companies | 308.99 | 347.05 | (-)10.97 | 388.92 | (-)20.55 |
| Manufacturing companies | 588.00 | 734.27 | (-)19.92 | 548.67 | 7.17 |
| Total(I) | 946.24 | 1,206.67 | (-)21.58 | 1,026.09 | (-)7.78 |
| CDs | Jul | Jun | MoM change in % | Jul-21 | YoY change in % |
| State-owned banks | 380.25 | 455.25 | (-)16.47 | -- | N.A. |
| Private banks | 132.15 | 220.90 | (-)40.18 | 52.95 | 149.58 |
| Other financial institutions | -- | 31.00 | (-)100.00 | 4.25 | (-)100.00 |
| Total | 512.40 | 707.15 | (-)27.54 | 57.20 | 795.80 |
End
Edited by Aditya Sakorkar
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