Mumbai: Tight cash conditions in the money market and high inflation are keeping Indian issuers on the sidelines of the primary debt markets.
A second 25 basis points instalment of a two-step banks’ reserve requirements increase is expected to kick in this weekend, worsening a cash squeeze in the money markets.
“Not many issuers are venturing out in such conditions and those who are, have signed on a lot of merchant bankers to ensure the issue is subscribed completely,” a merchant banker said.
Infrastructure Finance and Development Co. Ltd sold Rs1.35 billion of 3-year and 5-year bonds at 10.75% payable annually last week. IDFC-SSKI, Axis Bank, Trust Capital and ICICI Securities were the bankers to the deal.
Power Finance Corp., the state-run lender to power firms, raised more than Rs10 billion earlier this month by selling 3-,5- and 10-year papers. Seventeen merchant bankers were hired to do the deal, three bankers associated with the deal said.
IRFC, the finance arm of the Indian Railways, and Rural Electrification Corp are some of the issuers waiting to raise funds, two bankers said.
Indian industrial output grew at its slowest rate in six years in May, but a jump in inflation to nearly 12% made it unlikely weakening growth would persuade the central bank to hold off with interest rate rises.
The Reserve Bank of India raised its key lending rate by 25 basis points to 8.0% on 11 June and followed up with another 50 basis points increase to 8.5% on 24 June.
It has also raised the banks’ cash reserve ratio (CRR) by 125 basis points to 8.75%, including a two-stage 50 basis point increase in July.
Overnight cash rates, a barometer of cash supplies in the money market, traded around 9% on Monday and the central bank pumped in Rs274 billion at its daily money market operations, indicating the extent of the cash squeeze.
The yield on Reuters’ benchmark five-year corporate paper was at 10.81%, higher than 10.77% a week ago.
The spread between the five-year corporate and government debt was at 115 basis points, compared with 131 basis points last week.