Telecom Tiff Leaves Call Market In A Tizzy
This is just what has happened. Call money rates surged to 11 per cent yesterday on account of the telecom strike. Banks, predictably, were caught unawares.
Unable to meet their daily cash reserve ratio (CRR) requirements, they had to avail of export refinance. Calls stiffened and touched the 11-per cent mark, up from the early morning quote of 8.5 per cent.
The development took the market by surprise, which had been expecting that rates would not move beyond 6 to 7 per cent in a reporting Friday week. Particularly so, when the CRR had been pared by 2 percentage points.
Borrowing banks panicked as they were unable to access funds from lenders after 12 am. The telephone lines were dead. The call market, in which the lending and borrowing banks call up each other and strike deals, was paralysed for almost two hours.
Banks, which desperately needed to maintain their daily average 85 per cent CRR requirement, preferred to draw from their refinance quotas at 11 per cent rather than being labelled a defaulter by the RBI. In the case of a default on the average daily maintenance of CRR, the RBI levies a penalty by impounding a days interest payment on the reserves.
A few borrowing banks even went to the nearby lending bank, in person, to borrow funds. Lenders, of course, were quick to make their hay. They offered one-day money at rates as high as 10.5 per cent.
With the recent announcement of a 2 percentage point reduction in reserve ratio requirements of banks, the call rates have been ruling between 8 and 8.5 per cent. But for the telecom stir, there was no reason for rates to shoot up, said a dealer in a nationalised bank.
The problem was compounded by the fact that a number of banks were not receiving the current account statement from the RBI. This statement indicates the banks current account status with the RBI.
Due to the stir, therewas hardly any activity in the securities market as there was little possibility of transactions being finalised. However, the auction of the 364- day paper saw a record number of bids. ="/incs/bottom.inc"-->