High demand for funds from banks via certificate of deposits maturing after March, coupled with mutual funds' reluctance to lock funds beyond the current financial year, has led to a wide gap between the rates of papers maturing in March and beyond. |
The rates of papers maturing after March are quite high, compared with those maturing this month. |
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The instruments maturing towards the end of March are quoted at 7.25-7.50 per cent while those maturing a month from now, or mid-April, are quoted in the band of 8.50-8.75 per cent. |
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In the secondary market this week, Allahabad Bank's CDs maturing on March 22 were dealt at 7.10 per cent, while ICICI Bank's CDs maturing on May 15 were dealt at 8.55 per cent. |
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"Issuers would like to cross March, while investors would like to remain invested only for the period within March," a dealer at a debt market brokerage said. |
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Supporting the view was Ashwini Kumar, dealer, UCO Bank. "Banks generally prefer to place CDs maturing beyond March, so that their balance sheet picture is attractive," Ashwini Kumar said. |
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"At the same time, investors are reluctant to invest in assets (maturing) beyond March which has led to the gap in rates of CDs maturing in March, compared with those maturing beyond March," Kumar said. |
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As several banks wish to present a strong balance sheet every year, the liabilities side is being augmented by CDs. Besides, the growth in public deposits is slower than the growth in credit offtake, leading banks to tap the CD market, dealers said. |
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On the other hand, mutual funds, the chief investors in these instruments, would prefer papers maturing in March because they usually face high redemption from companies that pay their advance tax dues, dealers said. |
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Companies are expected to pay around Rs 25-30 crore as the last instalment of their advance tax for 2005-06 by March 15. |
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Besides, companies that are usually unwilling to disclose their mutual fund investments also go for redemption to clean their balance sheet at the year-end. Most banks have raised funds through three-month and one-year CDs recently. |
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There are hardly any banks that have raised funds through CDs maturing this month, dealers said. |
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Allahabad Bank, American Express Bank, Jammu & Kashmir Bank, State Bank of Patiala and UCO Bank are among the banks that have raised funds through CDs having maturity period of three months or above in recent days. |
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