Call rates move towards double-digit levels

Banks borrow Rs 42,770 crore from RBI ahead of Diwali.

Overnight call rates inched close to double digit levels on Monday and banks resorted to borrowing Rs 42,770 crore from the Reserve Bank of India through the repo route ahead of Diwali.

According to data from the website of the Clearing Corporation of India, call rates — after opening at 9 per cent this morning — ranged between 6 and 10 per cent.

The day’s weighted average was estimated at 9.34 per cent compared with 8.56 per cent on Saturday. Call rates were higher than the 8 per cent repo rate, or the rate at which the central bank lends to banks.

Dealers said, during a week with two off days, banks rushed to raise funds ahead of the reporting Friday. Further, RBI’s efforts to check the rupee’s depreciation was sucking out the currency’s liquidity.

Banks have to report their cash balances to RBI every two weeks and usually try and complete most of their borrowing in the first week itself. Banks are closed on Tuesday for Diwali and on Thursday for Bhai Dooj.

During the first liquidity adjustment facility session on Monday, 25 bids were received from banks to borrow Rs 21,805 crore. During the second session in the afternoon, another 25 bids for Rs 20,965 crore were received by RBI.

In addition, a bank borrowed Rs 150 crore through RBI’s fixed rate term repo to help cash-strapped mutual funds.

While call rates had eased after a string of measures by the central bank to infuse liquidity into the system, on Monday was the first day in the last fortnight when some tightness was witnessed.

Dealers said debt auctions, worth Rs 17,000 crore scheduled for this week, would also keep cash tight. The government will sell Rs 7,000 crore of treasury bills on Wednesday and Rs 10,000 crore of dated securities on Friday.

Call rates had touched a high of 23 per cent earlier this month as liquidity was tight in the domestic markets following payment of advance tax by companies on September 15. In addition, heavy borrowing by oil and fertiliser companies and RBI sucking out the rupee from the system put pressure on liquidity.

The central bank responded by a 250 basis point reduction in the cash reserve ratio, or the proportion of deposits that banks set aside, and opened special windows for banks to raise funds and help mutual funds in need of cash.

Another window was opened for banks to raise money against their farm loan relief scheme arrears. The statutory liquidity ratio was also lowered for banks in dire need of funds.