Banks Are Losing Trading Interest in Certificates of Deposits As Liquidity Woes Have Improved

By | June 1, 2011

A recent press report said that banks are losing trading interest in certificates of deposits because the liquidity position of the banks has started improving. In addition to this the RBI has also extended the deadline for banks to keep their investments below 10% in debt-oriented mutual funds which has further reduced the redemption pressure that the banks were facing earlier. It has also permitted banks to maintain their investments in liquid mutual funds below 10%, till January 2012 instead of October 2011 it had fixed earlier.

Reports said that banks have become slow on raising CDs and traded volumes in CDs, have gone down to Rs 6,478 crore from Rs 17,574 crore.  Mr.N.S Venkatesh, chief general manager and head of treasury at IDBI Bank told the press that activities in the secondary market have stabilized due to the transparency from the Reserve Bank of India   about the investment by banks in debt-oriented liquid funds. The ease in liquidity could also be due to slower credit pick-up.

Reports added saying that banks’ are allowed to access overnight funds for short-term asset-liability mismatches through LAF by pledging securities with the RBI. The RBI has been raising the base rates to control inflation; this has made all loans including home loan, personal loan, business loan etc costlier.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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