Banks raising high cost funds to tide over liquidity crunch

New Delhi: Faced with tight liquidity condition, banks have started offering high interest rate of 9.5% on certificate of deposit (CD), 125 basis points more than what they are giving to fixed deposit holders, reports PTI.

Currently, the rates of CD, an instrument generally issued by commercial banks with maturity varying between seven days to one year, are varying between 9.2% and 9.5% depending on the banks, treasury head of a public sector bank said. A CD bears a maturity date and a specified fixed interest rate.

At the same time, 1-2 year fixed deposit rates of some leading banks currently stand at 8.25%.

One year CD rate is always higher than 10-year government paper. However, in the last few weeks the corridor has widened substantially.

“The CD rates are substantially higher than the 10-year government bonds as well as retail fixed deposit rates,” Dhanlaxmi Bank treasury head Manish Sarraf said.

With deposits growth yet to pick up, banks are forced to offer higher rates on CDs to meet their resource requirements, he said.

The liquidity condition is tight and banks are borrowing over Rs1 lakh crore from the Reserve Bank of India (RBI) under liquidity adjustment facility (LAF), he added.

Since 8th November, banks have borrowed an average over Rs1 lakh crore through the liquidity adjustment facility of RBI.

According to treasury head of another private sector lender, tight liquidity condition is likely to continue for next two months or so.

Next week, the system would be drained out of Rs50,000 to Rs60,000 crore on account of advance tax payment due on 15th December.

Spending on the part of the government can ease the liquidity situation.

“I do think, that in the second half of this fiscal, and particularly in the last quarter, public spending will increase, and as a consequence of this, the liquidity situation in the system will improve,” PM’s Economic Advisory Council (PMEAC) chairman C Rangarajan had said last week.

“I think RBI will take necessary steps to ensure that adequate liquidity is present in the system,” he had said.


Govt to set up panel for faster acquisitions of mineral assets

New Delhi: To help public sector companies acquire global mineral assets without delays, the government would soon set up a committee, chaired by cabinet secretary KM Chandrasekhar, which would help formulate a policy to fast track finalisation of bids, reports PTI.

"Broadly, the idea is to enable PSUs (Public Sector Units) to finalise their bids rapidly, to set up a fast track committee to be headed by the cabinet secretary," DPE secretary Bhaskar Chatterjee told PTI.

The move is aimed at fighting competition from its neighbour China. Besides, it would help in providing a cushion to the PSUs to fight competition posed by private companies in India looking at similar opportunities overseas.

"We are outbid by private and international players, especially China," Mr Chatterjee said.

In the past, companies like Coal India, NTPC and SAIL have evinced interest in acquiring coal mines abroad to secure its fuel supplies.

The country's largest power generation company, NTPC is looking at picking up stakes in coal blocks in Indonesia, Australia and Africa.

"Any kind of policy by the government to streamline the process is welcome," CMD NTPC Arup Roy Choudhary said.

World's largest coal producer Coal India is also in talks with US-based Peabody Energy and Massey Energy for stakes in the mines owned by these companies.

State-run steel major SAIL, along with NTPC, Coal India, Rashtriya Ispat Nigam Ltd (RINL), is also scouting for coal mines in Australia and other coal-rich nations by forming a joint venture company-International Coal Ventures Ltd.


Decision on raising cotton exports cap on 13th Dec: Khullar

New Delhi: The government will decide whether to hike the cap on cotton exports in the current season beyond the existing ceiling of 55 lakh bales on 13th December, reports PTI quoting commerce secretary Rahul Khullar.

A meeting of the secretaries of the ministries of commerce, agriculture and textiles, which was scheduled to be held tomorrow, has been postponed till Monday, as Mr Khullar leaves for Brussels tonight for the India-EU Summit on 10th December.

“Cotton meeting has been postponed till Monday... Then we will take a decision,” he told reporters here.

Current trends, as well as the price situation of the natural fibre, will also be looked into at the review meeting.

The government had earlier accorded permission for the export of 55 lakh bales (170 kg each) of the natural fibre in the current cotton season, which runs from October to September.

Cotton production is expected to total 335 lakh bales in 2010-11, whereas domestic demand is pegged at 266 lakh bales.

Prices of the natural fibre have increased sharply over the past few months. According to industry experts, prices of the natural fibre are ruling at about Rs43,000 at present, compared to around Rs26,000 in the same period last year.

The government has also imposed a cap of 72 crore kg on cotton yarn exports this fiscal to help the domestic textiles industry in view of rising prices in the global market.

According to industry sources, prices of cotton yarn have increased by about 85% in the last nine months.

Total cotton yarn production is estimated at 346 crore kg in 2010-11, while domestic demand is pegged at 265 crore kg.

The textiles industry has been clamouring for restrictions on the export of cotton and cotton yarn, arguing that high prices are making their operations unviable.

India's cotton exports increased to 83 lakh bales during October-September, 2009-10, cotton season, compared to 35 lakh bales in the same period of 2008-09, as per official estimates.


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