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The holiday season, from March 28 to April 3, is not seen impacting the liquidity situation because most banks would have garnered funds from bulk deposits, while the avenues of deployment are limited in a scenario of slow credit growth.
March 28 is a holiday on account of Ram Navami. This would be followed by a holiday on April 2 for Mahavir Jayanti and then April 3 for Good Friday.
“The Reserve Bank of India (RBI) has been providing sufficient liquidity. Even today, the call rates were near the repo rate. RBI has been micro-managing liquidity, which will ensure no bank faces liquidity issues,” said the head of treasury of a large state-run bank. The official said banks were sitting on excess funds, as credit growth has been muted. Besides that, by Tuesday, banks would have garnered lots of funds through bulk deposits, due to which the need for funds will not be much, he added.
Besides daily repo auctions, RBI has been conducting term repo auctions and marginal standing facility (MSF). Even on Saturdays, RBI provides banks with the MSF window, reducing the liquidity woes. However, MSF, being the penal rate, is always fixed at 100 basis points (bps) above the repo rate, which stands at 7.50 per cent.
“If required, RBI might come up with some arrangement to cater to the liquidity needs. But I do not think the need will arise,” said the head of treasury of another state-run bank.
The weighted average call money rate stood at 7.27 per cent on Thursday, against 7.29 per cent on Wednesday. During intra-day trades, call rates climbed to 7.55 per cent on Thursday. Call rates have remained close to the repo rate.
However, a few market participants said the system might face some liquidity challenge. “There could be liquidity challenges on certain days, like April 2. We may see some volatility in call money rates,” said Ashutosh Khajuria, president (treasury), Federal Bank.
On February 7, call money rates had inched up to as high as 25 per cent during intra-day trades, while the weighted average stood at 11.13 per cent. Due to this, later that month RBI decided to conduct reverse repo and MSF operations every Saturday.
