Banks' borrowing crosses Rs 1-lakh-cr on tight liquidity

Banks will tend to wirhdraw more from RBI's short term LAF to manage fund requirements

The liquidity in the system has come under pressure, with banks’ borrowing at the Reserve Bank of India’s (RBI) liquidity window crossing the Rs 1,00,000-crore mark, ahead of payment of final instalment of advance tax.

This week, banks will draw more from RBI’s short-term liquidity adjustment facility (LAF) to manage fund requirements, said dealers. “It is the start of a new fortnight. Banks have started building their cash reserve ratio (CRR) requirement before the advance tax outflow happens. It is expected that the outflow on account of advance tax payment will be Rs 60,000 crore,” said a dealer with a private bank.

CRR is the proportion of total deposits a bank has to keep with RBI as cash. The CRR is four per cent of banks’ net demand and time liabilities (NDTL).

According to RBI data, 36 banks borrowed Rs 1,01,825 crore on Monday from LAF. Last week, the borrowing had eased below the Rs 1-lakh crore mark. On Friday, banks had drawn Rs 92,985 crore.

The last date for paying the fourth instalment of advance tax is March 15.

Although the credit demand is low, there is also some rush for meeting year-end targets set internally, said a senior public sector bank executive.

The Street is expecting RBI to step in by way of Open Market Operation (OMO) purchase of government bonds to ease the liquidity deficit. “OMO up to Rs 10,000 crore is likely to get announced by RBI to comfort the situation,” said Prasanna Patankar, senior vice-president at STCI Primary Dealer.

According to Patankar, the daily average bank borrowings under LAF are expected to be over Rs 1 lakh crore for the current fortnight.

Last week, government spending to the tune of Rs 25,000-30,000 crore had flown back to the system. In the previous week, the daily average liquidity deficit was over Rs 1 lakh crore.

According to Patankar, due to the rising liquidity deficit, short-term rates might not touch double digits. “Short-term rates may move up further by 10 basis points,” said Patankar. DRAWING DATA

• This week, banks will draw more from RBI’s short-term liquidity adjustment facility to manage fund requirements, said dealers
• The Street is expecting RBI to step in by way of open market purchase of government bonds to ease the liquidity deficit
• Last week, government spending to the tune of Rs 25,000-30,000 crore had flown back to the system