Banks borrow Rs 1.7 lakh cr from RBI, highest in FY13

Borrowing by banks under the Reserve Bank of India’s (RBI) daily Liquidity Adjustment Facility (LAF) touched a record high on Thursday for the financial year, at Rs 170,140 crore.

It was Rs 164,615 crore yesterday. The system generally sees such high borrowing in March, when liquidity is invariably tight. On March 30, banks had borrowed Rs 197,510 crore under the LAF.

“There is a need for more open market purchase of gilts and government spending should come into the system,” said S Srinivasaraghavan, executive vice-president and head-treasury at Dhanlaxmi Bank. He said there was a further need for open market operations (OMOs) worth Rs 35,000-40,000 crore by March 31.

RBI has conducted two OMOs on purchase of gilts this month, to ease liquidity.

The central bank has infused Rs 23,246 crore this way and is to do another tomorrow, for a notified amount of Rs 8,000 crore. However, the impact would be nullified, as RBI is to also auction gilts worth Rs 12,000 crore the same day.

In the past month, daily average borrowing by banks under the LAF has been Rs 109,700 crore.

The high borrowing was due to advance tax outflow. This drained Rs 50,000-60,000 crore from the system. The tight liquidity has also resulted in money market rates climbing up. “In the last couple of weeks, these have climbed 15-20 basis points. It may ease if government spending steps in,” said Mohan Shenoi, president-group treasury and global markets, Kotak Mahindra Bank.

Due to tight liquidity, many banks have been borrowing under the LAF and lending in the call money market, due to which call rates are hovering above the repo rate (at which RBI lends to banks) of eight per cent. This is despite RBI discouraging banks from such arbitrage, said the treasury head of a bank who did not wish to be named.