The liquidity deficit might remain under check towards the end of the second quarter this financial year. This is due to a cut in the cash reserve ratio and ample deposits available with banks. Typically, the liquidity deficit tends to shoot up in the last week, as lenders rush to meet quarter-end business targets. Stress on liquidity, if any, would be only for a couple of days, say market participants.
“The strain on liquidity expected from advance tax outflows has already been dealt with. Moreover, deposits are available in plenty for banks to meet their quarter-end targets,” said the treasury official from a large public sector bank.
While deposits grew Rs 96,460 crore, bank credit grew by Rs 59,630 crore in August, RBI data showed. The official added government spending expected this week would also add to the liquidity in the system. Last year, the liquidity deficit had shot up to above Rs 82,000 crore towards the end of the July-September quarter.
The Reserve Bank of India (RBI) had announced the reduction of 25 bps in cash reserve ratio or the amount banks are mandated to keep with the central bank in the mid-quarter monetary policy review held last week. Liquidity worth Rs 17,000 crore as a result of cut in cash reserve ratio has been released into the banking system from the fortnight beginning September 22, 2012.
"If there is any shortage, it can be managed comfortably. Hence, I do not see any impact on overnight borrowing rates either," said a senior official from a Mumbai-based private sector bank. The overnight call money rates have been hovering close to the repo rate of 8 per cent. Last fortnight, banks borrowed Rs 55,000 crore per day on average from the RBI.
There could be some spurt in call money rates and borrowings from the repo window of RBI's Liquidity Adjustment Facility (LAF) if banks choose to build reserve positions at the start of new reporting fortnight.
