Net borrowing by banks from the Reserve Bank of India (RBI) rose to a record Rs 127,870 crore on Monday. Bank borrowing has been rising despite measures by RBI to ease liquidity.
This didn’t much impact overnight call rates, which hovered between 5.25 per cent and seven per cent, indicating stability in the money market and absence of panic. Call rates closed at 6.20 per cent, a shade below RBI’s repo rate of 6.25 per cent.
RBI Deputy Governor Shyamal Gopinath said the central bank was monitoring the situation and there was so much potential liquidity in the system.
“One should not just look at the amount (of repo borrowing) but also call money, whether it has gone up substantially, like it used to in June and July. That has not been the case. There has been no panic at all,” Gopinath said on the sidelines of an event, according to a Reuters report.
On November 9, RBI opened a second liquidity adjustment facility (LAF) window and offered additional liquidity support under LAF up to one per cent of banks’ net demand and time liabilities up to December 16. Banks will also not be penalised for any shortfall in statutory liquidity ratio (SLR). Banks are required to invest 25 per cent of their net demand and time liabilities in government bonds and other approved securities under SLR. RBI said on November 9 the measures were announced “in order to provide liquidity comfort arising out of frictional liquidity pressure.”
“We are monitoring the liquidity situation. We have provided two facilities to banks. One is the second LAF (liquidity adjustment facility), the second is the leeway on SLR. So there is potential liquidity available in the market,” said Gopinath.
Liquidity in the system was expected to remain under strain as banks started raising funds to meet reserve requirements, IDBI Gilts said in its report.
This may keep call money rates firm. The system remains in the liquidity deficit mode. In new fortnight, typically, demand for money from banks is strong in the first week and tapers off as the end of the reporting cycle, according to IDBI Gilts.
