LAF borrowing stays above Rs 1 lakh crore; ICICI’s Kochhar says it’s temporary.
The extreme pressure on liquidity in the banking system was taking a toll on banks’ ability to plan credit decisions, bankers at a seminar here said, almost unanimously.
Om Prakash Bhatt, chairman of the State Bank of India, was vocal about the liquidity challenge, in the presence of Reserve Bank of India Deputy Governor Subir Gokarn, saying “there is discomfort about liquidity which is ‘yo-yoing’ ”.
“How can a bank plan for credit in such a situation?” he asked. The seminar was organised by the Indian Merchants Chamber.
S Sridhar, chairman and managing director of Central Bank of India, concurred with Bhatt’s view and said the current liquidity situation was posing a challenge for credit planning.
B A Prabhakar, executive director of Bank of India, said if there was no certainty about liquidity, banks couldn’t commit credit.
Bankers were voicing their frustration at a time when the credit demand is expected to grow in the busy season. For the third day in a row, borrowing from RBI’s Liquidity Adjustment Facility remained above Rs 1,10,000 crore.
To avoid the adverse impact of liquidity strain on credit growth, RBI has allowed banks to dip into their Statutory Liquidity Ratio holdings up to one per cent of their net demand and time liabilities. It will also conduct a special second set of reverse repo and repo auctions. These facilities are available until December 16. Today, banks borrowed a net Rs 1,20,465 crore from RBI at the repo window.
However, the resource strain did not push the interbank call rates to cross the double-digit mark. Today, call rates hovered between 4.5 per cent and 7.2 per cent. The volume was Rs 13,244 crore as against Rs 15,139 crore, according to Clearing Corporation of India data.
It was just 12 days ago (on October 29), when call rates had zoomed to a two-year high of 12 per cent, when banks drew over Rs 1,17,000 crore from RBI.
Chanda Kochhar, managing director and chief executive of ICICI Bank, had a different view. She expects government expenditure to ease the situation. “We should remember a lot of money has gone into 3G, taxes, festivities. It should start coming back,” she said.
Since May, liquidity in the banking system has remained tight due to outflows towards telecom spectrum allocation, followed by advance tax payments, and investments into various initial public offerings of companies. The tightness had been reflected in hardening of overnight rates and huge borrowings by banks from the RBI’s repo tender.
Kochhar said the RBI had been taking steps to ensure the tightness in liquidity did not impede credit growth. “So, while there is hardly excess liquidity, it is not an impediment to growth,” she said.
