Liquid funds, commonly used by corporates to park short-term cash, have experienced significant outflows due to the Reserve Bank of India’s measures to tighten liquidity conditions and cyclical outflows at the end of the half-year. Data from the Association of Mutual Funds in India (AMFI) shows that liquid funds witnessed net outflows of ₹74,176 crore in September, the highest among debt oriented schemes. Bond yields have risen sharply since August as the RBI has drained excess liquidity from the banking system.
Indian companies are raising more funds directly from the market through commercial papers, or CPs, and banks are choosing certificates of deposit, or CDs, to benefit from negotiable borrowing costs. The Reserve Bank of India has mandated banks to maintain an incremental CRR of 110% of net demand and time liabilities (NDTL).
