 "Overnight rates inch up ahead of FY close")
Ahead of the close of the financial year, overnight rates inched up as primary dealers (PDs) were allowed to borrow from the Reserve Bank of India (RBI)’s term repo window due to which banks had to resort to borrowing from call money and the Collateralised Borrowing and Lending Obligation (CBLO) market.
CBLO is a money market instrument representing an obligation between a borrower and a lender as to the terms and conditions of the loan.
The weighted average call money rate inched up to 7.80 per cent on Monday from 7.50 per cent on Friday, while the CBLO rate stood at 7.81 per cent compared to 7.59 per cent on Friday. On Monday, the call and CBLO rates went as high as 8.40 per cent and 8.44 per cent, respectively, during intra-day trades.
By allowing PDs to borrow from the term repo window, RBI wants to ensure overnight rates do not shoot up much above the repo rate, which stands at 7.50 per cent.
“Whichever bank is not getting funds from the term repo window, they are being forced to cover it up from the call money or CBLO market due to which overnight rates have inched up,” said a senior treasury official of a public sector bank.
Banks are also borrowing because of a short working week. This week, there would be a bank holiday on Thursday for Mahavir Jayanti, followed by another one on Friday on account of Good Friday. In fact RBI had said it would conduct liquidity operations, if required, during the holidays.
Banks have to adhere to a cash reserve ratio (CRR) requirement of 95 per cent daily and 100 per cent on a fortnightly basis. CRR is the proportion of total deposits a bank has to keep with RBI as cash. The CRR currently stands at four per cent of bank’s net demand and time liabilities. This does not earn banks any interest.
Therefore, many banks including the largest lender, State Bank of India (SBI), wants the CRR to be reduced. “The minimum requirement of maintaining CRR on a daily basis needs to be reduced from 95 per cent to 85 per cent,” said SBI in its monthly publication SBI Eco Watch.
CBLO is a money market instrument representing an obligation between a borrower and a lender as to the terms and conditions of the loan.
The weighted average call money rate inched up to 7.80 per cent on Monday from 7.50 per cent on Friday, while the CBLO rate stood at 7.81 per cent compared to 7.59 per cent on Friday. On Monday, the call and CBLO rates went as high as 8.40 per cent and 8.44 per cent, respectively, during intra-day trades.
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“Even in the term repo auction of March 2014, we were allowed to participate. This year, we were permitted to participate for the past three term repo auctions. What tends to happen is that because no bank or PD wants to lend at the end of the financial year, there is a lot of stress in the overnight market. To iron that out, PDs were allowed to participate in the past three auctions of term repos,” said a senior official of a PD.
By allowing PDs to borrow from the term repo window, RBI wants to ensure overnight rates do not shoot up much above the repo rate, which stands at 7.50 per cent.
“Whichever bank is not getting funds from the term repo window, they are being forced to cover it up from the call money or CBLO market due to which overnight rates have inched up,” said a senior treasury official of a public sector bank.
Banks are also borrowing because of a short working week. This week, there would be a bank holiday on Thursday for Mahavir Jayanti, followed by another one on Friday on account of Good Friday. In fact RBI had said it would conduct liquidity operations, if required, during the holidays.
Banks have to adhere to a cash reserve ratio (CRR) requirement of 95 per cent daily and 100 per cent on a fortnightly basis. CRR is the proportion of total deposits a bank has to keep with RBI as cash. The CRR currently stands at four per cent of bank’s net demand and time liabilities. This does not earn banks any interest.
Therefore, many banks including the largest lender, State Bank of India (SBI), wants the CRR to be reduced. “The minimum requirement of maintaining CRR on a daily basis needs to be reduced from 95 per cent to 85 per cent,” said SBI in its monthly publication SBI Eco Watch.