The Hindu Business Line : Institutions kept $10 b in dollar bonds in Sept

Shift in trends
Mutual funds park sizeable funds in overseas instruments.
Gross liabilities of US banks are higher now at $14.832 billion.

Bangalore , Nov. 17

Indian Institutional holdings of dollar denominated short-term treasury securities and certificates of deposits were $10.230 billion in September this year, up $1.7 billion on a year-on-year basis.

Figures released by the US Treasury Department indicate that the bulk of the institutional holdings were in the form of US treasury obligations that were $5.323 billion in September.

Holdings of other negotiable securities were about $4.919 billion and certificates of deposits were barely $8 million.

Indian institutions include banks operating in foreign countries, subsidiaries of Indian banks and insurance companies, including the General Insurance Corporation of India.

The institutional holdings were, however, down by $2.3 billion from August this year, the figures revealed.

Gross liabilities

As a result, the gross liabilities of US banks to domestic financial institutions are now at $14.832 billion. The sizeable shift to bank deposits and bank balances was evident from the $2 billion increase of holdings in negotiable securities that included cash balances, in September.

The shift was also partly on account of the low earnings from the US government securities, particularly dated securities. Long-term yields, ten-year,currently generate only about 4.5 per cent. In fact, these holdings are now minimal.

On the other hand, shorter dated treasuries, one month earned about 5.25 per cent and three months about 5.10 per cent. Returns from Certificates of Deposits/ cash balances for one month were closer to 5.35 per cent.

Profits booked

Bankers said that it was the inversion in the dollar yields that was prompting institutions to shift to the shorter end of the yield spectrum, and also resulting in pushing down the securities holdings below the US banks liabilities to Indian financial institutions.

The figures indicated that most of the banks had booked profits in the aftermath of the Federal Reserve Board meeting this September, when it had held the Federal funds steady at 5.25 per cent.

Most banks then expected a rate hike of 0.25 per cent. The correction that followed had allowed some of the Indian institutions to book profits through sales of the treasury holdings.

But, bankers also said that there was also sizeable accretion of funds from domestic mutual funds in international instruments.

Domestic funds were allowed to make cross border investments and most of them have chosen the US denominated securities, bankers said.

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