Most banks continued to issue one-year certificates of deposit (CDs) On Monday on view that investors may start demanding higher rates in coming weeks, eyeing advance tax payments due in September, dealers said.
Companies will pay the second installment of advance tax by mid-September. “Demand from mutual funds could fall next month as most of them will be holding on to cash on redemption pressures,” said a dealer with a mutual fund.
Mutual funds typically face redemption from banks and companies in September for payment of corporate advance tax. Banks also preferred to issue longer-tenure CDs On Monday as rates on one-year CDs fell by 5-10 basis points on higher demand.
On Monday, Punjab National Bank placed one-year CDs at 5.8000 per cent compared with 5.8650 per cent issued on Friday. Rates on three-month CDs were quoted at 3.75-4.00 per cent today, unchanged from Friday’s levels. Three-month CPs were quoted at 4.20-4.50 per cent today, flat versus Friday’s close.