The bonds have a tenor of five and 10 years, respectively, and the interest rates are yet to be determined.
Bankers urged RBI to allow them to dip into 2% of their SLR of the mandated 24% to meet short-term asset liability mismatch.
On the day of the auction itself, the yield rose to 7.87%. Bond prices and yields move in opposite direction.
Credit spreads for three-month to one-year corporate debt widen by 50-75 basis points on lack of demand.
India’s often-repeated plan to invest a trillion dollars in infrastructure may just remain on paper with investors turning their back on infra bonds.
Banks are borrowing at 6.5% from RBI and investing in liquid mutual fund schemes, which offer around 8.5% on redemption.
Banks sit pretty on cash despite huge outflow possibilities as they count on MF redemptions that will help them stay liquid.
Banks with high deposits forced to buy govt bonds pushing yields down, but others rush to call market pushing rates up.
Funds are available at 6.5% from the central bank under its liquidity adjustment facility (LAF) while rates in the call money market, where banks borrow from each other, are at 6.75-6.85%.
Interest rates on 90-day certificate of deposits touched a 26-month high as banks were seen rushing to build up their deposit base, which is very common towards the end of a financial year.
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