Some private sector banks are dumping parts of their unlisted corporate debenture portfolios in panic to their insurance arms.

Certain foreign banks are also seen to be selling top-rated unlisted securities in the market, in keeping with their internal norms on trading portfolio, as they do not wish to shift these bonds to their investment books.

As a result, yields have risen as much as 15-20 basis points in the last couple of trading sessions since the Reserve Bank of India capped banks' exposure to unlisted debt securities at 20 per cent.

Since the market regulator has banned brokers from issuing contract notes for transactions in unlisted debentures, these deals are taking place directly between the bank and the buyers. Unlisted paper of around Rs 10-15 crore (Rs 100-150 million) was changing hands, market dealers said.

Following the RBI announcement, banks have sounded out corporates through merchant bankers, asking them to list their existing securities to ensure the success of future bond issues.

Banks are offloading unlisted securities issued by even top-rated corporates such as Reliance, HDFC and Power Finance Corporation.

Even though the RBI's diktat applied only to banks, mutual funds were not keen to pick up unlisted debt paper even at the current attractive prices, market sources said.

This is because bonds issued by top corporate houses have also become illiquid. "As these bonds are unlisted, in the case of redemption pressure we will not be in a position to offload them. Additional purchases will also affect our valuations and, thereby, the net asset value," said a mutual fund executive.

At the same time, some mutual funds facing redemption pressure are not selling their corporate debenture portfolios since yields are rising. They were instead offloading government securities, the executive added.

"There is a huge list of unlisted debentures that some banks would like to offload. However, this is a temporary phenomenon, till corporates list all their issues," said a senior treasury head. He expects volumes to surge next year following the listing of all corporate debt.

The average daily volume in the corporate debt market has fallen to less than Rs 200 crore (Rs 2 billion) from Rs 400-500 crore (Rs 4-5 billion) earlier.