In complete contrast to the bank CD rates we’re seeing here in the United States, short term CD rates (as in 3 month CDs) in India currently provide more than twice the APY in which our nation’s best 20 year CD rates provide. An interesting article from the business standard was forwarded to us by BankVibe.com reader Trevor this week making note of this phenomena. Below is the summary.
“Short-term rates seem to be shooting through the roof. Acute shortage of liquidity made banks raise three-month funds via certificates of deposits (CDs) at nine per cent.
According to dealers, Bank of India raised three-month CDs at nine per cent today. Another government-owned lender, Syndicate Bank, raised Rs 300 crore at 8.99 per cent, while Corporation Bank raised Rs 500 crore via three-month CDs at 8.97 per cent. Rates for the three-month paper have increased 60-70 bps in the past one week owning to tightness in liquidity.
According to a treasury official, a south-based private sector bank has raised around Rs 200 crore through one-year CD at 9.55 per cent. Syndicate Bank today placed one-year CDs worth Rs 215 core at 9.25 per cent.
Liquidity continued to be tight today with banks raising more than Rs 1.25 lakh crore from the liquidity adjustment facility of the Reserve Bank of India.
Dealer said advance tax outflow, which is expected to suck out Rs 50,000-60,000 crore from the system, will put further pressure on rates.”