The sources said that besides public sector banks, private banks were also in the fray for the bulk funds. The high rates were seen due to tight liquidity conditions as oil refiners were drawing down their credit lines, for funding their dollar purchases. Bankers said that in addition to cash surplus public sector undertakings, mutual funds and non-life insurers were also parking funds in CDs to take advantage of the high yields. The bankers said a slow down in capital inflows had also resulted in reduced RBI interventions in the foreign exchange markets leading to a shortage of rupee liquidity. The deceleration in FII flows were partly due to funds anticipation of a further reduction in the US Fed Funds rates and accordingly profit in the event of a Treasury bond rally. The redemptions amounted to about Rs 4,500 crore, that partly helped to alleviate the tight liquidity situation. read more

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