Mumbai: Indian banks were shelving their fund raising plans as a cash squeeze in the banking system has raised funding costs and a heavy pipeline of issuances discourage fresh investments, bankers and fund managers said on Tuesday. Central Bank of India has deferred its Rs5.70 billion bond issue and Union Bank of India is planning to raise Rs12 billion in different tranches of bonds, but the timing is yet to be decided.
“Investors are not willing to bet on how long the liquidity squeeze will continue and that is not a very positive sign for the primary market,” said a local fund manager.
Analysts said surplus cash has thinned due to outflows as last week’s bond auctions were settled, government spending has slowed and there was less rupee-selling intervention by the central bank in the foreign exchange market.
“Indications are that this week will continue to exhibit tightness in rupee liquidity,” Kotak said in a weekly note.
The tightness in the cash markets has spilled over to the secondary debt markets with five-year paper quoting around the 9.15% to 9.20% levels, while the 10-year debt was quoting near 9.25% levels.
“These are very attractive levels to pick up these bonds but if cash conditions ease, then there will be a flood of new paper in the market, so its better to wait and watch,” said a banker.
National Fertilisers Ltd is looking to offload Rs1.50 billionof bonds received from the government. The government issued Rs36.1 billionof special bonds to 23 fertiliser companies on Monday.
Allahabad Bankplaced one-year paper worth Rs66.50 billion around the 9.20% to 9.40% levels and Corporation Bankraised Rs40 billion by selling one-year paper at 9.50% levels.
“With one-year paper going at such levels, who would want to raise longer tenor bonds,” said a local trader.
The yield on Reuters’ benchmark five-year corporate paperwas at 9.18% on Tuesday, up 10 basis points from last week.
The spread between the 5-year corporate and government debt was at 148 basis points, unchanged from last week.