Borrowings by banks under LAF to remain high

The situation is expected to improve once government starts spending

Borrowing by banks under Reserve Bank of India’s daily liquidity adjustment facility is expected to remain above Rs 100,000 crore next week as well, due to advance tax outflow. The situation is expected to improve once the government starts spending.

On the last day of payment of advance tax, banks borrowed Rs 1,35,175 crore on Friday, compared to a daily average borrowing of Rs 98,155 crore in the last one month. On Thursday, bank had borrowed Rs 92,475 crore. Advance tax outflows will go out of the system next week and the Street expects it to be about Rs 60,000 crore.

“Banks borrowed more keeping the advance tax outflows in mind and also because it is the first week of the reporting fortnight,” said Anoop Verma, vice-president, Development Credit Bank.

Meanwhile, in the inter-bank money market, call rates ended almost flat at 7.80 per cent compared with 7.79 per cent on Thursday.

‘The borrowings will continue to be above Rs 100,000 crore till government spending or Open Market Operation purchase of government bonds happen,” said S Srinivasaraghavan, executive vice-president and head (treasury) of Dhanlaxmi Bank.

Amid the tight liquidity, government bond yields fell marginally.

The yield on the 10-year benchmark government bonds ended at 7.86 per cent on Friday compared with the previous close of 7.87 per cent. However, the yield on these instruments is expected to fall from the current levels on Monday due to expectations of a repo rate cut by RBI in its mid-quarter review of monetary policy on March 19. The Street expects a 25 basis points cut in the repo rate, which is currently at 7.75 per cent.

The cut in the repo rate will boost growth and this in turn will help attract foreign fund flows into the country, said Srinivasaraghavan.

The rupee closed at 54.03 against the dollar on Friday compared with the previous close of 54.37.