Rs 3400-Crore Worth Of Fund Inflows Seen

The fortnight ending February 14 is expected to see a major inflow of funds of around Rs 3,400 crore into the banking system which will keep the call rate low and also push up security prices. In contrast, the outflow of funds is likely to be around Rs 325 crore.

A major chunk of this fund comes from the liquidity injected by the Reserve Bank of India (RBI) to the tune of $400 million on January 27 and January 28. This has released Rs 1,600 crore into the banking system.

ICICI Securities and Finance Company (I-Sec) in its debt market update for January 16-31 says the next fortnight will witness a net surplus of over Rs 3,000 crore which will certainly help to ease overnight rate from the high levels seen in the last fortnight. But I-Sec states that it remains to be seen if the call rates will move substantially below the refinance level. However, yesterday call at 10 per cent was below to refinance rate but its sustainability remains to be seen.

 

The report adds that a substantial easing in call rate will see a surge in prices of securities and treasury bills, though it is very difficult to envisage a sustain drop in yields since domestic demand coupled with the virtual absence of capital inflows will keep liquidity tight over the next couple of months. Most of the outflows during the week amounting to Rs 325 crore were based on the expected subscription to the 14-day, 91-day and 364-day treasury bills.

The inflows, apart from the liquidity injection by RBI through purchase of dollars, are due to interest payments and redemptions of treasury bills.

There are in fact three major redemptions of treasury bills. The 91-day treasury bill maturing on February 7 will bring in Rs 300 crore into the system. On February 14 a 14-day treasury bill will bring in Rs 320 crore and another Rs 300 crore will be pumped in on the same day due to the maturing of a 91-day treasury bill.