Over Rs 1 lakh crore worth of CDs face redemption in December.
The liquidity crunch being faced by banks is set to aggravate this month as certificates of deposit (CDs) worth around Rs 1.3 lakh crore come up for redemption and there are outflows due to advance tax payments, banks’ treasury officials have said.
Most CDs that face redemption are of three-month tenure. These were issued in September, when banks rushed to meet quarter-end targets amid tight liquidity.
Three-month CDs were today quoted at 8.9-nine per cent, up 10-20 basis points (bps) from yesterday, as banks rushed to raise deposits to meet quarter targets. According to dealers, Dena Bank and Syndicate Bank placed Rs 500-crore three-month CDs at nine per cent and 8.96 per cent, respectively.
The spread between three-month and one-year CDs has come down to 20 bps due to small appetite for longer duration paper as interest rates expected to go up. According to dealers, Andhra Bank placed Rs 65 crore one-year CDs at 9.2 per cent. The one-year bulk deposit rate was around 9.1 per cent.
CD rates are expected to move up further as liquidity will continue to be tight. The situation may worsen during the middle of the month when advance tax outflows by companies will put an additional burden of Rs 50,000- 60,000 crore on the system.
Today, the net borrowing by banks through the liquidity adjustment facility of the Reserve Bank of India (RBI) amounted to Rs 1.16 lakh crore. At 6.66 per cent, the interbank call money rate closed above RBI’s repo rate of 6.25 per cent, marginally lower than its previous close.
Deepak Parekh, chairman of Housing Finance Development Corp, said liquidity was expected to remain tight and some easing might be expected only in January.
“There will be shortage of liquidity for some time. However, we hope the government’s spending on infrastructure will ease it by January-March,” Parekh said. He said there was a slim chance of RBI raising rates in its mid-quarter review on December 16.
“I expect RBI not to raise key rates in the upcoming policy in December as liquidity in the system is tight and it cannot afford another hike,” he told reporters on the sidelines of an event.
In a move to provide some relief to the market, RBI had said it would buy up to Rs 12,000 of bonds on Thursday through open market operations while the government reduced the size of its weekly borrowing by a little more than half.
