Year-end targets, coupled with the withdrawal pressure before advance tax payments, have led to banks accessing the Reserve Bank of India (RBI)'s Marginal Standing Facility (MSF) to borrow funds at 9.5 per cent.
The central bank said on Wednesday, banks borrowed Rs 750 crore under the MSF. Banks had last accessed the facility two months earlier.
Since the beginning of this week, banks have been consistently borrowing around Rs 1.79 lakh crore a day from RBI's repo window. "The liquidity situation is a little difficult," said Pratip Chaudhuri, chairman, State Bank of India. He expects RBI to address the issue soon, as the situation would turn tighter around March 15. "Either a reduction in the cash reserve ratio (CRR) or the statutory liquidity ratio or some liquidity infusion measures, because we feel the liquidity situation will get much tighter around March 15."
Banks have been raising funds through certificates of deposits (CDs) at rates as high as 10.5 per cent. "With the lack of investors and a high demand for funds from banks, I won't be surprised if rates for CDs maturing in March touch 11 per cent," said a senior treasury official of a public sector bank.
Lately, overnight call money rates have been hovering much above the repo rate. On Wednesday, the call money rate closed at the day's high of 9.05 per cent. The rates in the collateralised borrowing and lending obligation market closed at nine per cent.
When introduced, the MSF window was supposed to be accessed only in case banks fell short of the minimum statutory liquidity ratio requirement of 24 per cent. However, in December, RBI had allowed banks to avail of the facility even when government securities were above the mandatory level.
Moses Harding, executive vice-president, IndusInd Bank, said, "There are serious discussions in the market, demanding an immediate CRR cut from RBI, on the liquidity adjustment facility drawdown hitting a peak of Rs 1.8 lakh crore at the beginning of the current fortnightly reporting cycle."
Market participants say open market operations (OMOs) by RBI were not of much help. "OMOs are not primarily adding to liquidity when the government is borrowing more than that every week," said the treasury official. However, this week, RBI has announced an OMO though no government bond sale is scheduled to take place. According to the revised calendar, the government may borrow Rs 12,000 crore in March. So far this financial year, RBI has infused over Rs 1 lakh crore through OMOs.