Demand from banks strains liquidity

Bank borrowing at RBI’s repo window rises to Rs 89,000 crore.

With a rise in the quarter-end demand for funds and a need to meet reserve requirements, bank borrowing at the Reserve Bank of India’s repo window rose sharply to cross Rs 89,000 crore on Wednesday.

Borrowing at the repo window yesterday was Rs 70,310 crore.

Dealers said the demand for funds shot up as banks were working to meet second quarter targets. This being the first week of the RBI’s reporting fortnight, banks tried to more than cover reserve requirements.

Liquidity is expected to improve next week, at the beginning of a new quarter. It has been under strain after companies paid the second installment of advance tax on September 15. Plus, banks have kept extra resources to meet demand over a few holidays, said Ashish Ghiya, managing director of Derivium Securities.

The bids at the repo window were high as banks who were keen on borrowing preferred to use it to get funds at a rate much lower than that in the inter-bank market, said a public sector executive.

The call money rate had risen to 7.4 per cent, the highest in six months, due to fall in cash supply as cut lending on the last working day before quarterly accounts closed.

Banks have to provide capital for the amount lent in the call money market. So, they generally avoid huge lending on the last day of the half-yearly closing, said a treasury head at a public sector bank.

Tomorrow, the real time gross settlement system will remain closed due to banks' half-yearly accounts closing.

The three-day call rate is likely to open firm at 6.5-6.75 per cent on Friday, as banks will borrow to meet their three-day reserve requirements, dealers said.

The overnight call money rate is expected to ease next week due to likely government spending.

There is no pressure from government borrowings. Also credit offtake is not robust and banks would get aggressive in deposit mobilisation, said P Sitaram, chief financial officer with IDBI Bank.