Call money rates shoot up to 15% intra-day

Banks rush for funds ahead of a series of holidays beginning Wednesday

On the last day of the financial year, overnight rates shot up to double digits as banks rushed for funds ahead of a series of holidays beginning Wednesday. The next trading day for the call money and borrowing and lending obligation is Saturday.

Call money rates moved up to 15 per cent during intra-day trade, though ending at nine per cent, compared with 7.7 per cent on Monday. The weighted average rate was 11.21 per cent, compared with 7.8 per cent on Monday.

Since Friday is a bank holiday, Tuesday was considered the day for fixing banks' Net Demand and Time Liabilities (NDTL). This is normally measured every alternate Friday, termed reporting Fridays.  

Wednesday is a bank holiday for stock taking and accounts’ closure for FY15. Thursday and Friday are bank holidays for Mahavir Jayanti and Good Friday.

“Banks were covering heavily their product requirements ahead of the holidays, due to which overnight rates shot up. Besides, there were outflows due to tax payments, putting pressure on liquidity,” said a senior treasury official of a state-run bank.

The Reserve Bank of India (RBI) will conduct reverse repo and Marginal Standing Facility (MSF) operations on Thursday. However, borrowing by banks under MSF means a rate higher by 100 basis points than the repo at 7.5 per cent.

“Today being the last day of the financial year, not many banks were lending. Higher rates were demanded in overnight lending,” said a treasury official with a large private bank.

RBI infused liquidity through three term repos, totalling to Rs 50,503 crore. Even so, banks faced a strain.

On February 7, call money rates had risen to as high as 25 per cent during intra-day trade and the weighted average stood at 11.13 per cent. Due to which, RBI decided later that month to conduct reverse repo and MSF operations every Saturday.

Banks have to adhere to a cash reserve ratio (CRR) requirement of 95 per cent daily and 100 per cent on a fortnightly basis. CRR is the proportion of total deposits a bank has to keep with RBI as cash. It is currently four per cent of a bank's NDTL and does not earn any interest.

Many lenders, including the largest one, State Bank of India (SBI), want the daily CRR requirement of 95 per cent to be reduced. “The minimum requirement of maintaining CRR on a daily basis needs to be reduced from 95 per cent to 85 per cent,” said SBI in its monthly publication.