Parking under LAF dips below Rs 100,000 crore

Banks use a part of their liquid funds for lending and state govt auctions.

Banks parked less than Rs 1,00,000 crore at the Reserve Bank of India’s (RBI’s) reverse repo window after almost five months as they used a part of their liquid funds for lending and state government auctions.

This, however, did not push the overnight lending rates. The overnight call rate moved in the range of 3-3.30 per cent.

According to RBI data, the central bank absorbed Rs 91,755 crore under the liquidity adjustment facility (LAF). RBI infused no amount under the LAF repo operation.

Dealers said though the pace of the credit offtake had remained low in this financial year, there were last-minute deployments for balance-sheet purposes. There was some demand for credit but it was weak, they said.

Banks are flush with funds as deposits have grown 20.5 per cent year-on year while the credit deployment growth is around 14 per cent, reflecting the economic slowdown.

A head of treasury with a large public sector bank said a part of the funds were used in the state government auctions during which nine states raised over Rs 9,000 crore through 10-year bonds. The mutual funds will also deploy less funds in the market as they will like to remain in cash to meet the redemption demand at the close of the second quarter.

IDBI Gilts said the liquidity situation was relatively easy and the money market rates were stable.

The companies and financial institutions paid the second tranche of advance tax by September 15 but this did not put any pressure on liquidity, dealers said.

Call money rate rose sharply today owing to a fall in cash supply as most banks had locked up funds on Friday itself by lending for four days, said dealers.

Three-day call rate ended at 4.00-4.15 per cent on Saturday as against 3.40-3.50 per cent on Friday for four-day loans. The overnight rate had touched a high of 4.25 per cent intra-day.

“Typically, supply dries up on Saturday because of less number of lenders. But since liquidity is more than comfortable in the banking system, today's rate should not be taken as a benchmark,” said a dealer at a private bank.

Banks borrowed through three-day loans as the call money market was to remain shut on Monday for Ramzan Id.