Liquidity tightness still above RBI comfort zone

Banks borrow Rs 1.02 lakh crore under LAF.

The liquidity deficit came down slightly on Monday but remained above Rs 1 lakh crore, as banks borrowed heavily from the repo window of the Reserve Bank of India (RBI).

“Cash balances with the government continue to be high and the bond auction has not stopped. In addition, money is locked in Power Grid Corp’s public offer,” said a treasury official from a large public sector bank.

Some banks’ reserve requirement had gone up by Rs 1,000 crore, dealers said, mainly due to a surge in deposits by Rs 2.47 lakh crore in October.

Net borrowing of banks from the liquidity adjustment facility (LAF) of RBI was Rs 1.02 lakh crore, as compared with 1.18 lakh crore on Friday. The interbank call money rate ended slightly up on Monday, as a shortened week and tight liquidity put upward pressure, even as demand was lower than last week, dealers said. The interbank call rate closed at 6.93 per cent as compared with 6.77 per cent on the previous day, data from Clearing Corporation of India showed. Outflows worth Rs 1.10 lakh crore towards payment for government bonds auctioned on Friday also put pressure on liquidity.

The central bank has been conducting two tenders daily under LAF and will do so until December 16 to help banks deal with the tight liquidity.

RBI has also given banks a leeway over on statutory liquidity (SLR) ratio. It has said a fall in banks’ SLR holdings of up to one per cent of the net demand and time liabilities may not invite any penalty. Despite these measures, the tightness in liquidity has been more than the comfort level of RBI. On Saturday, Deputy Governor Subir Gokarn said the tightness was more than the central bank would want it to be.