Primary issuance fell on Monday because banks offered lower rates on comfortable liquidity in the banking system, dealers said.
“The rates banks were offering were quite low, while mutual funds were asking for higher rates,” said a dealer with a mutual fund.
On Monday, banks parked Rs 43,200 crore at Reserve Bank of India’s reverse repo tender, which indicates ample liquidity.
RBI’s 50-basis-point cut in banks’ Cash Reserve Ratio, which came into effect Saturday, boosted liquidity in the banking system.
Banks had placed a lot of certificates of deposit this month and are not keen on placing more papers before RBI’s monetary policy review on January 27, dealers said.
So far this month, banks placed around Rs 13,800 crore through CDs.
As mutual funds have already invested a bulk sum in these papers, their investment capacity has fallen, dealers said.
“Mutual funds have been investing a lot in short-term papers this month.Most of their funds have dried up,” said a dealer with a mutual fund.
Banks and mutual funds are also staying on the sidelines ahead of the monetary policy review, dealers said.
Three-month certificates of deposit were quoted at 6.15-6.45 per cent on Monday, unchanged from Friday.
Three-month commercial papers were quoted steady at 10.00-10.50 per cent.
On Friday, Aditya Birla Nuvo placed Rs 25,000 crore of six-month CPs at 9.25 per cent.
Secondary market
Volume in secondary market continued to remain low because investors were not too keen on purchasing short-term papers, dealers said.
“The market on Monday was quiet, as mutual funds and banks were not keen on investing,” said a dealer with a mutual fund.
On Monday, December maturity papers were dealt at 7.00-7.10 per cent, unchanged from Friday.
