Liquidity deficit nears RBI comfort level

After hovering around Rs 80,000 crore for a month, the liquidity deficit has come down to Reserve Bank of India’s comfort level of Rs 50,000 crore. Banks on Friday borrowed Rs 56,085 crore from the two repo windows. Dealers attributed the drop to increase in government spending. Banks borrowed Rs 45,530 crore yesterday.

“Government spending has gone up in this week,” said a senior dealer with a public sector bank. According to RBI data, the government’s balance with the central bank went up by Rs 1,767 crore to Rs 68,471 crore at the end of January 28. “Banks have borrowed more than the usual in the beginning of the reporting fortnight. Also, they have seen good growth in deposits,” said S Sridhar, treasury head of Axis Bank.

Banks have raised interest rates on deposits across various maturities for the third time since October. RBI, in its monetary policy review, had expressed concern on the increasing gap between deposit and credit growth. To ease liquidity, it had extended support to banks under the Liquidity Adjustment Facility up to one per cent of their net demand and time liabilities till April 8, 2011.