Call rate ends at 17% amid tight liquidity

In the inter-bank money market call money rate shot up in the last trading day of the fiscal.

The 5-day call money rate ended at 17% amid tight liquidity. However, the street expects it to ease as the new fiscal starts.

Data from Clearing Corporation of India showed, the collateralized borrowing and lending obligations or CBLO touched a high of 16% today. The spike in the call rate comes amid tight liquidity with banks’ borrowing Rs 1,74,745 crore from the Liquidity Adjustment Facility (LAF) window of the Reserve Bank of India (RBI).
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Bank borrowing from the LAF window of the RBI has been around Rs 1 lakh crore, which is above the central bank’s comfort zone of +/- 1% of banks’ net demand and time liabilities which is around Rs 65,000 crore.

On Tuesday, banks had borrowed Rs 1.60 lakh crore from RBI.

RBI had said it will conduct additional LAF auction on Thursday to facilitate ‘smooth and non-disruptive conduct of banking operations’, on the last trading day of the fiscal.

The central bank will also conduct the auction on Saturday and Sunday as well keeping in mind banks’ requirement for cash at a time when liquidity is tight.

“It is the fiscal end due to which most banks have capital adequacy requirements due to which they are not willing to lend to each other. The other factors is that mutual fund houses are facing redemption pressure and this pressure is spilling over to the inter-bank money market,” said the head of treasury of a private bank.

The present liquidity crunch in the system is driven by lack of government spending and also demand for funds by banks to meet their year-end targets.

“From Wednesday call rate will be back to near 7.50%. Today was just a one-day phenomena,” said J Moses Harding, head—ALCO and economic and market research, IndusInd Bank.

According to some reports, the government is expected to close the year with Rs 75,000 crore cash balance with RBI. The central bank has acknowledged that wedge between credit and deposit growth, has become a structural issue, which is causing the liquidity tightness.

According to RBI data, till March 8, year-on-year growth of bank credit was 15.4% while deposit grew by 13.1%.