Banks to seek more RBI action on liquidity

It is a stressful time for liquidity managers of commercial banks. Short-term rates are rising amid tight liquidity. More tightness is expected after advance tax outflow in the middle of this month. The December quarter-end rush to dress up top line is expected to add pressure. And, many certificates of deposit (CDs) taken by banks in September, when there was a similar liquidity crunch, will come up for redemption by the month-end.

Some banks have conveyed the problem to their collective forum, the Indian Banks’ Association. The latter will request a meeting of bankers with the deputy governor concerned of the Reserve Bank of India (RBI). Bankers would lobby on three things and would like RBI to grant at least one. The first is a further cut in the statutory liquidity ratio (SLR, the amount of liquid assets each financial institution has to maintain) by one per cent. The second being 100 per cent export finance by RBI at the repo rate (at which banks borrow from RBI). The third, a cut in the cash reserve ratio, the minimum each bank must hold to customer deposits and notes.

The buzz for a CRR cut is gaining momentum. “With the inflation outlook not worrying, as indicated by the fall in food inflation, it is time to do away with ad hoc measures. A cut in CRR should be contemplated now, as there is no reason for the cost of loans to be higher,” said the chairman and managing director of a public sector bank. Food inflation fell to a single digit after 18 months to 8.6 per cent for the week ended November 20.
 

BANKERS WANT RBI TO GRANT ANY ONE:

* Further cut in SLR

* 100% export finance at repo rate

* A cut in CRR

Battle for cash
The liquidity tightness has resulted in a bidding war. One-year bulk deposit rates are around nine per cent. Bidding was also evident in some deals. According to a treasury official, two banks got involved in a fierce battle for Rs 500 crore deposits of ONGC. First, Canara Bank quoted 9.01 per cent for the one-year deposit, to which Bank of Baroda responded with 9.06 per cent. At nine per cent, the effective lending rate cannot be less than 11 per cent, after adjusting for CRR and SLR. In the CD market, Central Bank of India raised a three-month one at 8.85 per cent. The regulator has been interacting with dealing rooms of banks more frequently these days to get a feel of the market. SBI was among a few banks with excess SLR, for which it can borrow up to Rs 50,000 crore through the repo window.