Bank Cash In On Volatility In Call Market

Volatility in the call money market, trailing the volatile movements in the currency, have come as a money making opportunity for some banks who are drawing down refinance at 8 per cent and parking the funds either in RBI repos or in the call money market at 13-14 per cent. The call rates in the last fortnight were within the 13.5 to 14.5 per cent range. On the other hand, Tier-I refinance to the banks and primary dealers is available at the bank rate at 8 per cent. In such a situation, the players had a fair chance of making profit through arbitrage by borrowing Tier I refinance and lending in call. "There is a possibility that some players have taken advantage of the low refinance rate vis-à-vis the high call rate", said a dealer with a private sector bank. "However the difference between the rates have only benefited the net lenders in the call money market, which are usually the nationalised banks," he added. A section of the market, however accepted the possibility of arbitrage, but doubts how much money has been parked like this. "There is no clear evidence that banks have used the refinance monies to invest in the call money market," said the treasury head of a primary dealer firm. "They might have used it for their own asset building as well", he added. A dealer at a nationalised bank has said "there is always a possibility of arbitrage in such situations, however I don't believe that nationalised banks could have made large profit out of it as the refinance level was not very high". "Moreover RBI always keeps an eye so that such kind of arbitrage does not happen", he continued.