| An official with a public sector banks said, "Banks are unwinding positions because of the cash-tight situation in the market. They are holding on to their cash surpluses." |
| The liquidity in the banking system has dwindled to just Rs 1,035 crore from over Rs 20,000 crore in the second half of October. The liquidity was around Rs 15,000 crore till last week. |
| The cash crunch in the banking system is likely to continue for some more time with Rs 33,000 crore outgo expected on account of redemption of India Millennium Deposits (IMDs) on December 29. |
| Consequently, banks have become conscious of where they are parking their funds. Several corporates funded the call options through the lines of credit signed to meet this eventuality. |
| For banks, the put and call lending offers over 1 percentage point higher return than funds deployed in call money market. Corporates, on their part, find it cheaper than the normal short-term loans. However, they always need to be prepared to meet banks' call options. |
| A treasury head of a public sector bank said, "The loan market now fetches a much higher return for one year loans. There is no reason why banks should continue parking their liquid funds with corporates." |
| Till the liquidity condition were comfortable, the put and call lending fetched interest income ranging from 5.4 to 6.5 per cent. With interest rates rising, the cost of these funds too have gone up. Such lending accounted for almost 5-7 per cent of most banks' total loan portfolio. |
| A daily put and call option loan is technically a bond, with banks having the option to call back the funds whenever they want and the companies the option to return the money whenever their cash position demanded without having to bear a penalty for prepayment. |
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