Issuance of certificates of deposit (CD) rose on Wednesday, as did the rates, because banks continued to issue these instruments to refinance their existing papers. Banks’ issuance of CDs rises during the end of a quarter, as they seek funds to build their deposit base.
On Wednesday, banks placed Rs 3,850 crore worth of CDs, taking the total issuance so far this month to Rs 34,200 crore. In November, Rs 25,300 crore of CDs were issued.
“Banks are also keen on issuing CDs now as they don’t expect the rates to fall significantly in coming weeks,” said a dealer with a state-owned bank.
He said high supply of paper will keep the rates firm in the near term.
The rates on short-term papers rose by 5-10 basis points on Wednesday due to the huge demand for funds from banks.
Three-month CDs were dealt at 8.90-9.10 per cent compared with 8.70-8.90 per cent Tuesday.
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Three-month commercial papers were quoted at 9.40-9.60 per cent, unchanged from Monday.
Rates for one-year papers were 9.45-9.65 per cent compared with 9.40-9.60 per cent Tuesday.
CP volumes were thin on Wednesday because investors were keen on investing in CDs as the spread between a three-month CD and CP was just 40-50 basis points.