Call rates dip to 6%, banks reduce repo borrowings

CRR cut, other RBI measures leave market flush with funds.

As a pointer to easing of liquidity conditions, interest rates for overnight borrowing dipped over 250 basis points a day after the Reserve Bank of India (RBI) slashed the Cash Reserve Ratio (CRR) by an additional 100 basis points.

One-day call rates, according to Clearing Corporation of India, touched a low of 5.65 per cent, while the weighted average for the day was 6.94 per cent. Yesterday, call rates were estimated at 10 per cent.

The Collateralised Borrowing and Lending Obligation (CBLO) rates ended at a weighted average rate of 6.29 per cent today compared with 9.05 per cent yesterday. “The CRR cut has resulted in comfortable liquidity in the system,” said a dealer at a private bank.

 

As a consequence, banks, comfortable with fund position, also borrowed much less at RBI’s repo window (Liqudity Adjustment Facility). The central bank pumped in just Rs 12,670 crore through the LAF sessions, as against Rs Rs 55,000 crore yesterday.

Today’s borrowings included Rs 2,270 crore under the special repo window to enable banks to provide money to cash-strapped mutual funds. In fact, banks parked Rs 6,270 crore with RBI through the reverse repo window today. So the net borrowings, excluding the MF option, was around Rs 4,000 crore. In contrast, last Friday, when the call rates touched 23 per cent, banks had borrowed over Rs 90,000 crore through the two LAF sessions.

In commercial paper (CP) and certificates of deposits (CDs) markets, the rates fell in the same way as in the call market. But dealers said the market for commercial paper remains illiquid as there are few takers for the instrument.

A treasury head of a public sector bank said the total amount that has come into market due to the 250-basis point cut in CRR is about Rs 1,00,000 crore. “This has improved liquidity in the market and we expect the situation to remain better (less strain on liquidity) at least till the end of the month.”

RBI’s moves have lowered borrowing needs of banks, easing demand for funds, dealers said. Besides the CRR cut, the advancement of payment of Rs 25,000 crore to banks for the farm debt relief scheme is expected to improve the situation. IDBI Gilts Managing Director N S Venkatesh said, “Going forward, daily borrowings (through LAF) are unlikely to cross the Rs 50,000-crore mark.”

However, the situation is quite fluid, said a treasury executive at State Bank of India. “The redpmetion pressure on mutual funds will have a bearing on the liquidity. If the BSE-30 index falls below the 10,000 mark, there will be redpemtion in the equity schemes, for which MFs will have to arrange for more funds,” he said.

The three-day call rate is seen in the range of 6.75-7.10 per cent on Friday. The borrowings will be slightly higher, owing to three-day reserve requirements, while the cash supply is seen comfortable. Banks may deposit funds through the central bank’s reverse repo tender. CBLOs are seen in the range of 5.50-7.00 per cent.