Liquidity eases, banks park over Rs 25,000 cr with RBI

Banks today parked over Rs 25,000 crore with the Reserve Bank of India (RBI), signalling some ease in liquidity after the payment of the last installment of corporate advance tax.

According to dealers, systemic liquidity started to get easier compared to the last few days, resulting in a sharp fall in the interbank overnight rate to 3.34 per cent compared with 3.85 per cent yesterday. Banks placed Rs 25,190 crore at the reverse repo window of RBI as against Rs 6,455 crore yesterday. The overnight call rate was seen in a range of 3.25-4.10 per cent.

“What is driving some banks is simple arbitrage. They are deploying funds at a window which gives better returns,” said the head of treasury at a large public sector bank.

Dealers said, “Today was the day when corporate advance tax moved out of the banking system. So, there was demand from few banks for cash. However, the call rate had eased from the 4.10 per cent level at the end of the trade.”

Bankers said there was still not much credit offtake from big-ticket clients (read companies). Most of it is going to small and medium units and retail. Companies may scale up borrowing in the next 10-days perhaps, impacting liquidity.

Most dealers expect liquidity to tighten next week following the corporate advance tax outflows. However, it is likely to continue for just two weeks because government expenditure would start from April, bringing liquidity back into the system.

The tight liquidity condition may be partly tempered with the unwinding of investments in mutual funds (MFs). Banks will scale down their exposure to MF debt and liquid fund schemes before March-end, as they seek to avoid capital charge on these investments.