Rupee firms up
Mumbai: The rupee strengthened on Tuesday on steady US dollar inflows closing at 44.64, against the previous close of 44.67.
Forwards: The one-year premia closed at 1.75 per cent (1.65 per cent) and the six-month at 1.9 per cent (1.86 per cent).

G-Secs: In the bond market, the 8.07 per cent-11 year-2017 paper closed at Rs104.67 (7.43 per cent YTM), almost the same level as Monday's Rs104.7 (7.43 per cent YTM) The 9.39 per cent-5 year-2011 paper ended at Rs109.66 (7.15 per cent YTM), slightly higher than Monday's close Rs109.62 (7.16 per cent YTM).

Call rates: The inter bank rates closed at 5.80-6 per cent (6-6.25).

Repo: In the one-day repo, under the liquidity adjustment facility, the RBI accepted three bids, amounting to Rs1,350 crore. In the second auction, the central bank accepted 11 bids for Rs3,395 crore through the reverse-repo.

CBLO: The CBLO market saw 411 trades, aggregating to Rs22,227.35 crore in 5.50-6.50 per cent.
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RBI hikes FCNR-B deposit rates
Mumbai: The Reserve Bank of India (RBI) on Tuesday stepped in and hiked the interest rate ceiling on foreign currency non-resident (FCNR-B) deposits by 25 basis points by way of easing the tight liquidity conditions.

Interest rates on FCNR-B deposits of all maturities contracted with effect from March 28, 2006 should not exceed Libor/swap rate prevailing on the last working day of the previous week for relevant maturity and currency. This was 25 basis points below the Libor/swap rates since April 29, 2002.

The move comes on the back of a meeting of senior bankers with RBI governor Y.V. Reddy in which they are reported to have asked for a cut in the cash reserve ratio, unwinding of market stabilisation securities and deregulation of expatriate deposits to ease a liquidity squeeze in the banking system.

In the April-December period, outstanding FCNR-B deposits amounted to US$11.6bn. Following the latest rate hike, more expat money is expected to flow into the country.
It is expected that a 2-percentage-point cut in CRR would release Rs40,000 crore (US$4.5bn) into the banking system.

With the money market suffering a cash crunch in recent months, the finance minister
P Chidambaram had said last week that he hoped the RBI would act to improve liquidity conditions after meeting Indian bank chiefs this week.
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IOB first bank to issue perpetual bonds
Chennai: Indian Overseas Bank (IOB) has become the first bank to raise Rs200 crore through an issue of `perpetual bonds.' The bonds will carry an interest rate of 9.3 per cent, payable every half year.

In subscribing to Perpetual bonds while the investor forfeits the option to redeem their money, the issuer however retains the right to pay back investors and redeem the bonds after a period of time. Typically, pension funds and insurance companies subscribe to perpetual bonds. The Reserve Bank of India has allowed these bonds to qualify as Tier-I capital.

Interestingly, while IOB's board of directors has cleared a proposal to raise Rs300 crore, the bank, however, has raised only Rs200 crore. IOB officials clarified that `perpetual bonds' being a new kind of instrument in India, the bank had preferred to go for Rs200 crore only. IOB has the option to redeem the bonds after ten years.

The rating agency, ICRA, has rated these bonds LAA, which is one notch below the LAA+ rating assigned to the Rs550 crore subordinated bond (Tier-II) programme of IOB. With this issue, IOB's capital adequacy ratio has now increased to 12 per cent.
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