Banks wary of lending despite abundant liquidity

MONEY MARKET ROUND-UP

The liquidity remained abundant, but banks are still wary of lending. According to dealers, the banks are preparing for the reporting Friday this week. The first tranche of the CRR hike comes into effect this week.

With effect from April 26, the CRR has been raised by 25 basis points to 7.75 per cent and a full 8 per cent from May 10 onwards.

CRR - cash reserve ratio is the portion of the deposit mobilised by a bank over a fortnight and kept with the RBI as a statutory requirement.

The increased demand for rupee has pushed up the call rates from 5.75 per cent to 6.10 per cent on Wednesday. Call rate is the interest rate at which banks lend and borrow funds from each other for their daily fund requirements. The call rates are expected to firm up further towards the end of the week, said the dealer.

G-sec: Cautious trading
The government securities market fell by 9-10 paise as trading became cautious in preparation for the increased CRR maintenance with the RBI with effect from this Friday.

However, the yield movement in the papers were rangebound between 1 and 2 basis points. One basis point is one hundredth of a percentage point.

The yield on the benchmark ten year paper 8.24 per cent 2018 closed at 8.17 per cent. At the auction held on Wednesday, the 91-day treasury bill was sold at a cut-off yield of 7.43 per cent, higher than market expectations. The cut off yield for the 364 day t-bill has gone up to 7.68 per cent as against 7.37 per cent earlier.

OIS: Lacking direction
In the overnight interest rate swap (OIS) market, the outlook was bullish on the back of comfortable liquidity in the short term.

In the highly traded segment of one year maturity, the yield fell from 7.39 per cent to 7.37 per cent. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.

The corporate bond market was lacklustre both in the long term and short-term segment of the maturity. Dealers said that the bond issuers do not want to raise money when the subscribers are uncertain on the interest rate outlook.

According to market sources, the only long-term issue in the market was Tata Power's, which was sold to a single subscriber - Life Insurance Corporation for Rs 500 crore as against the issue size of Rs 300 crore.

Rupee: Weak close
The spot rupee opened at 39.95 but declined to 40.09 on the back of heavy dollar buying by oil companies and NDF arbitrage. NDF- non deliverable forward is a derivative market operational overseas, where calls are taken on the rupee dollar exchange rate.

However, the rupee closed a tad stronger at 40.05/06 to a dollar. Exporter selling at 40 levels led to softening of the rupee premia on forward dollars.

The annualised premia for six month and one year forward dollars closed at 2.05 per cent and 1.90 per cent as against 2.65 per cent and 2.13 per cent respectively on Tuesday.