Blaming high cash balance with the government for aggravating liquidity strain in the system, the Reserve Bank on Thursday asked it to loosen purse strings for easing the situation. "On Wednesday, the government cash balance stood at Rs 92,000 crore (Rs 920 billion). We expect the government to spend and reduce the cash balance and ease the liquidity position. Although the government is spending, it is not enough," RBI Governor D Subbarao said after RBI's central board meeting.
He said the government was sitting on huge cash balances it got from higher than expected receipts from 3G spectrum auction, disinvestment and indirect-tax collections. "We are deeply conscious of the liquidity situation," Subbarao said.
The Reserve Bank has already taken steps to inject liquidity into the system and Subbarao indicated that it may take further steps to deal with the situation. He said that RBI was studying the issues and would take necessary steps as required.
The tough liquidity situation could be gauged from the fact that banks today borrowed over Rs 83,500 crore (Rs 835 billion) from RBI through its repo (money lent against government papers) window.
The results for additional repo programme, which starts from the evening, are yet to come. This is over and above Rs 1,27,000 crore (Rs 1,270 billion) borrowed by banks from RBI through repo window under Liquidity Adjustment Facility.
RBI had said that the LAF window should be within Rs 50,000 crore (Rs 500 billion). "However, we saw that in the last 45 days, injection under LAF was higher than that, yesterday it was Rs 1,27,000 crore," Subbarao said.
The tight liquidity situation could also be gauged from the hike in deposit rates announced by a slew of banks -- SBI, ICICI Bank, PNB. Besides, banks have also announced special deposit schemes to tide over the liquidity crisis.
Analysts hope that once the government starts spending, liquidity situation would ease. "It is true that in the last quarter of the fiscal, public spending increases. I would expect that the liquidity situation would begin to ease as public spending starts increasing," Prime Minister's Economic Advisory Council Chairman C Rangarajan had said yesterday.
In fact, the Government recently got Parliament nod for spending additional Rs 20,000 crore (Rs 200 billion). Earlier, it had received similar approval for spending additional amount of Rs 54,000 crore (Rs 540 billion) over the Budget estimates.
The government got around Rs 70,000 crore (Rs 700 billion) more than it had projected in the Budget from spectrum sale for high speed telephony and Internet services.
Besides, it got around Rs 22,000 crore (Rs 220 billion) from disinvestment in state-run enterprises. Also, the government's indirect tax collections were up 42 per cent to Rs 1.8 lakh crore for the first seven months of this fiscal.
