Banks step up borrowings at repo window

Reflecting tight cash conditions, net borrowing by banks at the Reserve Bank of India’s liquidity adjustment facility (LAF) surged to Rs 82,490 crore.

Dealers said, large amount has been moved out of the system as companies paid advance income tax and towards payment of telecom licenses. There is also pressure on banks to increase their business volume (raise deposits and push more credit) before the end of the first quarter (June 2010).

Borrowing was high at both sessions of LAF. In the morning session, banks raised Rs 36,935 crore. The demand grew further in the afternoon session to Rs 45,555 crore. Yesterday, players borrowed Rs 70,175 crore from the Central bank.

Senior official at State Bank of India said, the liquidity may come under further strain next week, and LAF borrowings could cross Rs 90,000 crore-mark.

The pressure on liquidity was anticipated. Last week, RBI in consultation with the government, announced plan to buy-back bonds up to Rs 20,000 crore to infuse cash in the system. The repurchase operations were purely of ad hoc nature. It is to be funded through the current surplus cash balances of the government.

RBI has bought back government bonds worth Rs 9,113 crore through two auctions. Senior executive at a public sector bank said, most bonds which were indicated for repurchase carried high coupon rate. No one would sell such bonds that too when they are maturing next month.

Though, banks are borrowing increased amounts from RBI, it has not pushed call money rates higher.

The inter-bank call money rates moved up slightly to 5.33 per cent from 5.31 per cent yesterday, according to data from the Clearing Corp of India web site.

The yield on 7.80 per cent, 2020 bonds eased to 7.57 per cent from 7.6 per cent the previous day.