Bank borrowing demand at RBI's liquidity window zooms past Rs 2,00,000 cr

Short term rates shoot up by 100-200 basis points

Banks scrambled today Reserve Bank of India’s Liquidity Adjustment Facility (LAF), pushing the demand for over-night money beyond Rs 2,00,000 crore a day before restrictions for borrowings from RBI set in.

The short term lending rates rose sharply by 100-200 basis points. The weighted average rate in NDS call market was ruling at 9.18% over yesterday’s 7.21%, according to Clearing Corporation of India (CCIL) data.

Treasury executives said every bank is trying to borrow as much as possible at 7.25% at LAF window to manage liquidity mismatch and meet Cash Reserve Ratio (CRR) requirements.

According to RBI data it received demand from 52 participants for Rs 2,16,350 crore as against Rs 92,360 crore from 25 banks.

In a move to check the volatility of the currency, the RBI last night decided to reduce rupee liquidity in the system by capping the liquidity adjustment facility at Rs 75,000 crore from Wednesday.

Consequently, the marginal standing facility rate has been increased by 200 bps to 10.25 bps. MSF rate is considered a penal rate and banks avail the facility as a last resort. Accordingly, the Bank rate also stands adjusted to 10.25% with immediate effect.

The central bank also decided to conduct open market sales of government securities worth Rs 12,000 crore on July 18, which will further suck out rupee liquidity from the system.