Expect a similar kind of switch from PIBs to treasury bills in the banking sectors books, the one that was witnessed last year from t-bills to PIBs. Back then, it was the mouth watering lucrative yields on offer that enticed all and sundry to the long term papers. This time around, it is the slowdown in interest rates and an expectation of a further cut in rates that is keeping investors close to short-term papers.
The government fetched Rs340 billion in lieu of treasury bills in the latest auction. Mind you, the target set for the three month period starting August is Rs1.4 trillion. The discussed auction generated well over Rs100 billion beyond the targeted amount of Rs225 billion. And the yields stayed virtually unchanged when compared with the previous Treasury bill auction.
While, at one hand, it shows governments desperation to continue borrowing despite claims of limiting the borrowing - it also shows how banks have become so reluctant to lend to anyone else. That the government in all likelihood will break the limit for the quarter is no news. Remember that the latest PIB auction saw many bids rejected placed at higher rates - leaving banks with surplus liquidity looking for an avenue to park.
And what safer place to park your money than the sovereign papers - be it short-term and not as lucrative. As long as, it is risk-free, banks would not mind piling up investments in their asset portfolio.
The last few auctions should provide a hint to the earlier question posed whether banks would shift their asset mix strategy once the rates drop. The answer so far, seems heavily in favour of status quo - that is the private sector will keep getting the cold shoulder. It is either that or there is a genuine lack of demand being generated from the private sector .Either way, it does not paint a rosy picture, especially when you talk about moving towards a growth era.
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