 "Liquidity deficit up: FM")
Bank borrowings through the Reserve Bank of India (RBI)’s daily liquidity adjustment facility (LAF) rose on Monday, as advance tax outflows were on their way out of the system.
The deadline for the payment of advance tax was Friday. On Monday, banks borrowed Rs 1,42,670 crore through the central bank’s LAF window, compared with an average Rs 1 lakh crore daily in the last month. On Friday, banks had borrowed Rs 1,35,175 crore.
“LAF borrowings may continue to be high this week. The advance tax outflow is to the extent of Rs 60,000 crore,” said a government bond dealer with a private bank.
Finance Minister P Chidambaram said RBI would address concerns related to liquidity in the mid-quarter review of its monetary policy tomorrow. “I am sure he (RBI Governor D Subbarao) will address the issue of liquidity and in the policy, there will be a paragraph on liquidity,” he said after meeting public sector bank chiefs on Monday.
Chidambaram’s words gave the Street a signal RBI might cut the cash reserve ratio (CRR) by 25 basis points tomorrow. “CRR may be cut by 25 basis points and that would infuse liquidity of about Rs 18,000 crore and give some comfort to the situation,” said Debendra Kumar Dash, assistant vice-president (money market), Development Credit Bank.
CRR is the proportion of total deposits a bank has to keep with RBI as cash. Currently, CRR stands at four per cent of banks’ net demand and time liabilities.
The finance minister said many public sector banks had statutory liquidity ratios more than the required 23 per cent and were earning interest on the liquidity, not lending to companies.
The deadline for the payment of advance tax was Friday. On Monday, banks borrowed Rs 1,42,670 crore through the central bank’s LAF window, compared with an average Rs 1 lakh crore daily in the last month. On Friday, banks had borrowed Rs 1,35,175 crore.
“LAF borrowings may continue to be high this week. The advance tax outflow is to the extent of Rs 60,000 crore,” said a government bond dealer with a private bank.
Finance Minister P Chidambaram said RBI would address concerns related to liquidity in the mid-quarter review of its monetary policy tomorrow. “I am sure he (RBI Governor D Subbarao) will address the issue of liquidity and in the policy, there will be a paragraph on liquidity,” he said after meeting public sector bank chiefs on Monday.
Chidambaram’s words gave the Street a signal RBI might cut the cash reserve ratio (CRR) by 25 basis points tomorrow. “CRR may be cut by 25 basis points and that would infuse liquidity of about Rs 18,000 crore and give some comfort to the situation,” said Debendra Kumar Dash, assistant vice-president (money market), Development Credit Bank.
CRR is the proportion of total deposits a bank has to keep with RBI as cash. Currently, CRR stands at four per cent of banks’ net demand and time liabilities.
The finance minister said many public sector banks had statutory liquidity ratios more than the required 23 per cent and were earning interest on the liquidity, not lending to companies.