Liquidity to remain under strain

The liquidity tightness is expected to remain under pressure due to a large sum of money getting blocked in the public offer of Power Grid Corporation, even as it awaits Reserve Bank India’s additional steps to ease strain.

Throughout the last week, daily bank borrowings at RBI liquidity window were over Rs 1 00,000 crore. Though it has not pushed call money rates.

On Friday, banks borrowed Rs 120,835 crore from RBI’s repo window and deposited Rs 2,265 crore at RBI’s reverse repo window. Net liquidity injected by RBI was Rs 1 18,570 crore.

The overnight call rate was seen in a range of 6.25-7.05 per cent. Senior treasury official with associate banking unit of State Bank of India said, “We do not expect much of relief next week. There could be a status quo unless RBI takes additional steps to improve liquidity.”

Besides, reducing statutory liquidity ratio (SLR) norms without attracting penalty, RBI has used two tools – rescheduling government borrowing plan in a particular week and buying back existing bonds – to infuse liquidity in the system.

On Saturday, RBI Deputy Governor Subir Gokarn hinted at some more steps to ease pressure.

RBI was comfortable with liquidity deficit of one per cent minus net demand and time liabilities, which is around Rs 50,000 crore and when it moves beyond the bank it “is something we are likely to respond to”.

Treasury officials said state-owned Powergrid Corporation of India’s follow-on public offer was subscribed over 14 times the issue size of about Rs 8,000 crore. While money remains within the system, it may not available for use till allotment happens.

Money mopped up via divestments, like for Coal India which brought about Rs 15,000 crore into government kitty, is expected to come back to system. The government has already begun the spending from the balances kept with RBI. Its balance shrunk to Rs 12,768 crore till November 5 from Rs 36,559 crore a week ago.