Banks take demand loans from RBI

Thereafter in cases of extreme crisis or need for funds, the route for demand loans is sought, which is usually at a higher rate compared to the repo rate of 7.75 per cent .  Call rate is the interest rate for lending and borrowing of funds by the banks for daily fund requirements.  Sources close to the developments said that the borrowings made by 15-odd banks through the demand loan route has witnessed an increase of Rs 4128 crore week over week. Usually the balance remains flat at around Rs 100-150 crore, said sources.  Since the week coincides with the opening of the initial public offer of Reliance Power with an issue size of around Rs 12,000 crore , it is believed that most of the banks have borrowed in excess for on-lending to retail as well as institutional investors to participate in the IPO.  The borrowing from RBI as demand loans is done under section 17 of the RBI act.  The IPO has resulted in a temporary and artificial shortage of funds in the market which is keeping the call rates rather high at 7.5/8 per cent. Dealers said that the call rates will ease from Thursday onwards when the refunds start coming.  Moreover, the call rates had gone up to a high of 60 per cent last week when real time gross settlement got flooded with settlement orders and the system stopped settlements for an hour.  According to market sources, the settlement needs to be done for each market