Banks pitch SORR as overnight benchmark ahead of RBI policy meeting

The central bank has been conducting a series of interactions with banks, seeking feedback to tide over the liquidity crunch in the banking system and improve monetary transmission

Bankers have requested the Reserve Bank of India (RBI) to make secured overnight rupee rate (SORR) the overnight benchmark instead of weighted average call rate (WACR) in the monetary policy review meeting next week. They have also asked for reduction in the cash reserve ratio (CRR) requirement for banks from the current 4 per cent.

 

The central bank has been conducting a series of interactions with banks, asking them for feedback to tide over the liquidity crunch and improve monetary transmission.

 

“The RBI may declare SORR as the benchmark rate of overnight money market instruments from the existing interbank call money rate,” said a person aware of the discussions.

 

The RBI had set up a committee to review the rupee interest rate benchmarks in the country, especially the usage of Mumbai interbank outright rate (Mibor), and to examine the need for transition to new benchmarks. It was proposed by the committee to develop a benchmark based on secured money markets (both basket repo and TREP).

 

The six-member rate-setting panel will meet between April 7 and 9 to review the monetary policy, the outcome of which will be announced on the last day of the meeting.

 

Lenders also advocated for a reduction in CRR to ensure comfortable liquidity in the banking system for better transmission of rate cuts.

 

“Owing to seasonal outflows, which occur due to GST payments and advanced tax outflows, banks come under pressure, and we are expecting some changes in the liquidity management framework. A CRR cut will be a welcome move,” said a source.

 

The RBI has cut the repo rate by 25 basis points (bps) to 6.25 per cent in the February policy review. Market participants expect another 25 bps rate cut in the upcoming review.

 

The central bank had cut CRR by 50 bps in two tranches in December 2024. CRR was reduced to 4 per cent from 4.5 per cent.

 

Bankers sought clarity on the central bank’s comfort with liquidity in relation to Net Demand and Time Liabilities (NDTL).

 

“The liquidity might be seen in surplus right now, but we have nearly ₹1.8 trillion outflows scheduled around April 20, which brings the liquidity to zero or neutral. There should be some adjustments around NDTL that RBI is comfortable with,” said another banker.

 

The banking system's liquidity shifted to surplus in April after more than four months, driven by government spending and the central bank's ongoing efforts to inject liquidity through dollar-rupee buy/sell swap auctions, open market operations (OMOs), and variable rate repo auctions, said experts. The net liquidity was in a surplus of ₹1.93 trillion on Wednesday, according to the latest RBI data.

 

On Thursday, the RBI decided to not conduct the 14-day main operation for the upcoming fortnight, i.e., April 4-17, after reviewing the current liquidity situation.

 

Bankers said the decision was taken in view of the liquidity turning surplus in recent times. They expect the central bank to conduct a daily variable rate reverse repo (VRRR) auction to suck out surplus liquidity.