The rupee resources of the banking system should be augmented by over Rs 1900 crore during the period between January 28 - February 5 on account of the maturing of 91-day treasury bills, 364-day treasury bills and coupon flows on central government securities.
In fact, on January 29, there will be an inflow of Rs 635 crore on account of the maturing of the 364-day treasury bill, and another Rs 271.25 crore on account of coupon flows. A break-up of flows reveal that Rs 635 crore will flow in on account of maturing of the 364-day treasury bills, Rs 300 crore on account of the maturing of 91-day treasury bills and Rs 973.98 crore on account of coupon flows from government securities. This translates into an inflow of Rs 1908.98 crore. These inflows should provide some succor to the funds starved banking system.
On January 16, the Reserve Bank of India had announced a hike in cash reserve ratio and slashed refinance limits in order to fight the depreciation of the rupee.
This had led to an outflow of over Rs 6,000 crore from the system. Consequently, call money rates have been ruling at an average of 50- 70 per cent. While banks have hiked their deposit and lending rates, some foreign banks have effected two rounds of increases in their lending rates.
There is now considerable speculation in the market on when RBI would start rolling back these measures and ease the liquidity. A section of the market feels that Reserve Bank of India would initially increase the refinance limits of the banking system.
The RBI is not expected to do anything in haste, and the roll back could be spread over a period of one month. Till RBI infuses liquidity in the system, the maturing of treasury bills and coupon flows are expected to ease the tight situation in the money market.
As of now, it has been the financial institutions and the mutual funds which have been the primary lenders in the money market.
