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Amid tight liquidity in the system, certificates of deposit (CD) rates have started rising, with fund houses, the key buyers of these instruments, demanding higher rates from banks.
“Some banks have done issuances in the range of 8.85-8.95 per cent for two-three month CDs. The rates have already climbed up by 30-35 basis points compared to January levels,” said Bekxy Kuriakose, head of fixed income, Principal PNB Mutual Fund.
Sources say Allahabad Bank has issued two-month CDs at 8.94 per cent, while Andhra Bank issued CDs of the same maturity period at 8.95 per cent. For IDBI Bank, the rate was 8.88 per cent and for Vijaya Bank, 8.91 per cent.
“There is liquidity tightness in the system, which is pushing yields up. Banks are doing refinancing of earlier CDs. Fund houses, too, are looking for higher rates,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.
Secondary market trading data show three-month CD rates rose by 54 basis points compared to January-end. On Wednesday, the rate on the three-month CD stood at 8.9 per cent. Ahead of the end of this financial year, the rates will rise further, it is expected.
The tight liquidity has resulted from a cut in government spending, aimed at meeting the FY15 fiscal deficit target of 4.1 per cent of gross domestic product (GDP). For FY16, the target has been set at 3.6 per cent of GDP.
Bankers say the liquidity situation would have been worse had the Reserve Bank of India (RBI) not conducted term repo auctions. Between Friday and March 3, RBI will infuse up to Rs 66,500 crore through 14-day term repos.
“Successful bidders will get the allotment at their respective bids,” RBI said on Wednesday.“Some banks have done issuances in the range of 8.85-8.95 per cent for two-three month CDs. The rates have already climbed up by 30-35 basis points compared to January levels,” said Bekxy Kuriakose, head of fixed income, Principal PNB Mutual Fund.
Sources say Allahabad Bank has issued two-month CDs at 8.94 per cent, while Andhra Bank issued CDs of the same maturity period at 8.95 per cent. For IDBI Bank, the rate was 8.88 per cent and for Vijaya Bank, 8.91 per cent.
“There is liquidity tightness in the system, which is pushing yields up. Banks are doing refinancing of earlier CDs. Fund houses, too, are looking for higher rates,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.
Secondary market trading data show three-month CD rates rose by 54 basis points compared to January-end. On Wednesday, the rate on the three-month CD stood at 8.9 per cent. Ahead of the end of this financial year, the rates will rise further, it is expected.
The tight liquidity has resulted from a cut in government spending, aimed at meeting the FY15 fiscal deficit target of 4.1 per cent of gross domestic product (GDP). For FY16, the target has been set at 3.6 per cent of GDP.
Bankers say the liquidity situation would have been worse had the Reserve Bank of India (RBI) not conducted term repo auctions. Between Friday and March 3, RBI will infuse up to Rs 66,500 crore through 14-day term repos.
