3G outgo tightens liquidity further

But situation better than expected.

Liquidity conditions tightened further today, as cash went out of the system for payment of 3G spectrum fees.

Banks were net borrowers to the tune of Rs 5,575 crore today, as against Rs 3,710 crore yesterday. However, dealers said the situation was much better than what they had anticipated. Even in the money market, rates rose marginally, while volumes were at similar levels.

In the collateralised borrowing and lending obligations space — also accessed by mutual funds, insurance companies, bond houses and non-banking finance companies — the overall volume was estimated at Rs 45,600 crore against Rs 45,750 crore yesterday, according to data on the Clearing Corporation of India website.

Dealers said banks were net borrowers to the tune of Rs 5,295 crore in the morning auction, but the situation improved in evening and banks raised Rs 280 crore during the second liquidity adjustment facility operation.

In the morning, banks played it safe and kept cash with themselves to meet requirements. But, later in the day, they realised the situation was not as bad as expected. Mutual funds also saw that redemption pressure was not large and came into the market to lend around noon. As a result, call rates fell from around 5.25 in the morning to 4.5-4.75 in the second half.

“The situation will remain the same. I expect call rates to be 5-5.25 per cent in the morning. And, if things remain fine, it will drop to 4.5-4.75 per cent in the afternoon,” the head of a bond house said.

The situation may remain the same during the remaining week, only to improve marginally next week. Dealers said liquidity could tighten again in the third week, as companies pay the first installment of advance tax.

However, the broadband wireless auctions, which have already seen bids of over Rs 23,000 crore, may spoil the calculations. “If bidding ends in the next few days, then liquidity will continue to remain tight,” said a treasury executive at a public sector bank.

The government borrowing programme, which has not been altered so far, may also keep liquidity under pressure. The Reserve Bank of India announced the auction of papers worth Rs 13,000 crore, which is expected to suck out liquidity at the end of the week.