BANKS SHORE UP FUNDS FEARING RATE HIKE

As per the report appearing in the Business Line, commercial banks appear to be trying to second-guess RBI's moves on interest rates and liquidity management as they fear that RBI might suck-out excess liquidity through a hike in CRR to rein in inflation.

Banks have issued Certificates of Deposit (CD) aggregating to about Rs.20000 crore in the past two weeks. The rash of CD issuances has been due to advance tax outflows totalling Rs,.54000 crore in the December quarter. The flurry of CD issuance have pushed up interest rates on these instruments  by about 25 basis points in the last fortnight. While State Bank of Travancore issued one-year duration CDs at 5.75% on December 7, Bank of Baroda issued one-year CDs at 5.97% on December 18.

Among those that have raised between Rs.500 crore and Rs.1000 crore through Certificates of Deposit are UCO Bank, United Bank of India, Central Bank of India, Punjab National Bank, Corporation Bank, Canara Bank, Bank of Baroda, State Bank of Travancore and State Bank of Hyderabad.

According to RBI data, banks have garnered about Rs.83000 crore in the first 10 months of the current calendar year through CD issuances against Rs.27000 crore in the corresponding period last year.

Source: http://www.thehindubusinessline.com/2009/12/24/stories/2009122453230100.htm