Owing to the outflow of corporate advance tax from the banking system, rates on the Certificates of Deposit (CDs) are ruling high above 8 percent, media reports indicate. The first instalment of corporate advance tax is due on June 15.
Advance tax outflow has strained liquidity in the banking system with banks borrowing about Rs 85,000 crore on an average under RBIÂ’s liquidity adjustment facility.
This is slightly above the central bankÂ’s comfort zone of one per cent of net demand and time liabilities (NDTL).
Market participants estimate the outflow towards advance tax at Rs 30,000-40,000 crore. There are also three-month CD maturing in June and there will be repricing of these CDs, some participants said.
Interest rate on the three-month CDs are currently at 8.18 per cent, six-month at 8.25 per cent and one-year at 8.38 per cent. The demand for CDs has also come down, resulting in rates being elevated.
Some traders expect rates on CDs to ease once June ends and a new quarter begins.
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