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Liquidity tightens further

By BS Reporter
June 09, 2010 11:40 IST
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The banking system remained in the borrowing mode on Tuesday raising Rs 67,625 crore (Rs 676.25 billion) on a net basis through two liquidity adjustment facility operations conducted by the Reserve Bank of India.

On Monday, banks were net borrowers to the tune of Rs 62,000 crore (Rs 620 billion) -- the highest level seen since October 31, 2008.

Tuesday's fund-raising during the LAF operation beat that record and recorded the highest level since October 10, 2008 when banks, at the peak of the global financial crisis, raised Rs 91,500 crore (Rs 915 billion) through LAF operations.



Amount parked
 via reverse repo


May 31 3,710 11,362 2.80-5.30
Jun 1 5,575 9,409 2.90-5.40
Jun 2 12,775 6,171 2.50-5.40
Jun 3 8,095 6,456 2.95-5.35
Jun 4 16,875 393 2.90-5.30
Jun 5


516 2.90-5.30
Jun 7 61,920 5,858 2.85-5.40
Jun 8 67,625 5,972 2.85-5.40
Since May 31 banks have been net borrowers during
RBI's liquidity adjustment facility operations
No LAF operation was conducted on June 5
Amount in Rs crore, rate in %
Source: RBI, Clearing Corporation
  Repo Reverse
LAF 1 33,530 410 33,120
LAF 2 34,525 20 34,515
Total 68,055 430 67,625
Figures in Rs crore

However, unlike the previous trend that was due to the recession, the present bout of cash crunch with banks is due to payment of spectrum fees by telecom operators which has drained out Rs 68,000 crore (Rs 680 billion) from the system.

Besides, companies are also keeping ready cash to make advance tax payments for the June 15 deadline. In addition, banks which have to meet fortnightly reserve requirements are keeping cash with themselves.

According to market estimates nearly Rs 30,000 crore will go out for the system next week towards payment of advance tax. Once the broadband spectrum auctions are over, at least another Rs 32,000 crore (Rs 320 billion) will go out within a fortnight.

As a result of the pressures, call-money rate ended firm near the Reserve Bank of India repo rate of 5.25 per cent. "The system is still in borrowing mode. So the call-rate will hover near the repo rate. But it is true that any untoward pressure on liquidity is not being seen," said a dealer with a private bank.

Volumes in the call-money market seem to have stabilised near the Rs 6,000 crore (Rs 60-billion) level and around Rs 35,000 crore (Rs 350 billion) in the collateralised borrowing and lending obligations market.

In the CBLO space, rates were similar at around 5.21-5.40 per cent with the weighted average for the day at 5.26 per cent -- the same as on Monday.

The weighted average call rate on Tuesday was 5.09 per cent, as against 5.11 per cent on Monday.

With the call rate close to the repo rate banks have opted to use the RBI overnight liquidity window, which dispenses larger amount of cash. In the call market, bankers said, it is not easy to get cash in large lots.

Dealers said the call rate is likely to stay firm for the next few weeks.

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BS Reporter in Mumbai
Source: source

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