CALCUTTA, Mar 9: Interest rates on certificates of deposit (CDs) and commercial papers (CPs) are on the rise as banks are mopping up funds for the short term and deploying them in CPs issued in large numbers by the corporate sector.Till the end of December 1997, the rates on CDs were moving between five and 11.5 per cent at an average of nine per cent. They were more or less stable in January and early February. However, during the last week of February and in the first week of March, the rates rose, ranging between 10.25 and 14.75 per cent.
According to senior State Bank of India (SBI) officials, consequent upon the increase in the Reserve Bank of India Bank Rate in January, there was a spurt in the lending and deposit rates. Therefore, the public sector banks started mobilising funds through CDs which resulted in an increase in the rates. However, the private and the foreign banks have increased their deposit rates far beyond those offered by public sector banks -- at least 100 to 150 percentage pointshigher for short-term maturities.
Investors, deprived of alternatives, prefer parking their funds with private and foreign banks, especially for shorter maturity periods. However, banking circles clarified that funds infusion through the issue of CDs was being done only in a few branches, with the cost of funds adequately spread. For instance, banking sources said that out of the 8,000-odd branches of the SBI, only around 100 branches would be issuing CDs.
