Liquidity situation to ease in 2-3 weeks: Allahabad Bank CMD

The tight liquidity situation will soften in the next 2-3 weeks due to the infusion of more money into the macro system.

“The tight liquidity scenario is partly the result of advance tax payments till December 15. This money will come into the system in the coming weeks softening the current squeeze,” Allahabad Bank CMD J P Dua told Business Standard.

Besides, he said the effect of the recent reduction in Statutory Liquidity Ratio (SLR) from 25 per cent to 24 per cent for commercial banks would also help.

“The Open Market Operations (OMOs) by the Reserve Bank of India (RBI), which will inject liquidity equivalent of Rs 48,000 crore in the system and the ongoing sugar harvest will further ease the prevailing tight liquidity situation by coming into circulation,” he added.

To overcome the liquidity crunch, the commercial banks have been routinely borrowing around Rs 150,000 crore from the repo window of the RBI.

Besides, there has been a mismatch in the growth of deposits and credit further aggravating the situation.

“RBI had already said the growth in deposits would not be able to match the credit demand,” Dua said adding that in recent weeks, the remittances by Non-Resident Indians (NRIs) had also been low.

On the upward bias of key policy rates, he maintained that since the inflation numbers remained quite high, there was the possibility of another round of hike in interest rates.

“Going by the current situation and if the inflation does not soften in the coming weeks, a 25 basis points increase in key policy rates can be expected,” he forecast.

However, he complemented the central bank for managing the macro economic situation well by trying to control runaway inflation, yet not allowing growth to suffer.

“We have renewed our thrust on low cost deposits and are targeting Cash and Savings Account (CASA) levels of 35 per cent this fiscal,” he informed. The bank is aiming at a net interest margin (NIM) of 3 per cent, while till September NIM stood at 3.34 per cent.

Dua was in town for the ‘Focus UP’ month being observed by the bank in December.

“We are bullish on the Micro, Small and Medium Enterprises (MSME) sector in UP and feel there is a lot of credit absorption capacity in the agriculture and MSME sectors need to be harnessed,” he added.