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India cash rates rise as Coal India IPO drains funds

Indian overnight cash rates were higher on Friday as demand for funds rose amid tight liquidity in the banking system as outflows towards the country's largest share sale loomed coupled with lack of government spending.

business Updated: Oct 15, 2010 14:51 IST

Indian overnight cash rates were higher on Friday as demand for funds rose amid tight liquidity in the banking system as outflows towards the country's largest share sale loomed coupled with lack of government spending.

Liquidity is expected to get skewed further next week, as investors make payment for Coal India shares to the IPO arrangers.

State-owned Coal India is set to open its initial public offering on Monday, to raise up to $3.5 billion.

The IPO will lead to an outflow of around 150 billion rupees to the government.

At 1:47 pm, the one-day inter-bank cash was at 6.40/6.50 per cent, above Thursday's closing of 6.20/30 per cent. The rate has thus far moved in the 6.40-6.60 per cent band in the session, according to Thomson Reuters data.

"The repo amount clearly shows the extent of tightness. It would get worse next week, but generally rates will not rise above 6.50 per cent mostly," a senior dealer with a foreign bank said.

Banks borrowed 885.70 billion rupees from the central bank's repo window on Friday compared with 690.30 billion on Wednesday, reflecting the extent of the cash tightness in the system.

The weighted average rate in the call money market was 6.49 per cent compared with Thursday's 6.36 per cent and that in the collateralised borrowing and lending obligation (CBLO) market was 5.97 per cent, compared with 6.01 per cent on Thursday.

Volume in the call market was at 68.20 billion rupees and that in CBLO 509.08 billion rupees, CCIL data showed.