State Bank, Boi Hit As Foreign Banks Draw Down Credit Lines
Public sector banks, including State Bank of India (SBI) and Bank of India (BoI), have taken a hit with foreign banks drawing down reciprocal lines of credit to reduce their dependence on the inflated call money market. Call rates have hovered at around 50-70 per cent, soaring to a high of 140 per cent.
Officials with the BoI and SBI confirmed that foreign banks have been drawing rupee funds from them as per an agreement under which the latter can draw rupee resources even as public sector banks can draw dollars in return. The lines of credit are drawn at the lending rates of the public sector banks.
However, some public sector banks, including the Bank of Baroda, have been left unaffected as they had revoked the reciprocal lines of credit three months ago. The BoI and SBI cannot, however, renege on their commitments and the existing arrangement cannot be reworked till its date of review or by mutual consent.
According to market estimates, the foreign banks can draw around Rs 1,000 crore from the public sector banks.
The SBI has, in particular, been affected by large drawals. For instance, Oil and Natural Gas Corporation (ONGC) withdrew over Rs 900 crore worth of funds last week and parked them in three-month certificate deposits at a interest of 15 per cent with the Bank of Baroda and the BOI.
SBI officials, however, said the bank was unaffected by the drawing down of lines of credit and the large withdrawals. We are used to large inflows and outflows and we factor this possibility while managing liquidity, said an SBI official. Subsequent to the hike in the cash reserve ratio (CRR) and reduction in refinance facilities, there was an outflow of over Rs 6,000 crore from the banking system on Saturday. This has pushed up call rates and there are, at present, only a handful of lenders in the market, viz the mutual funds and financial institutions.
Public sector banks have been selling T-bills and other securities at a steep discount and corporates have been investing in this paper. On the other hand, on Friday, one of the foreign banks lent funds to a nationalised bank for the rest of the fortnight at 70 per cent.