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Bank borrowings under the Reserve Bank of India’s (RBI) daily liquidity adjustment facility (LAF) hit its highest level on Monday, the first day of the last week of the current financial year.
Scrambling for funds to meet their year-end target, banks borrowed Rs 1,49,235 crore on Monday, way above the average borrowing of Rs 1 lakh crore-plus over the past month.
The Street is of the view that the liquidity deficit is expected to go up further before coming down and the situation will ease only if government spending flows back into the system.
Borrowings may further rise this week before falling at the start of the next financial year as government spending is likely to happen only in the next financial year.
“The call rates may rise further and the LAF borrowing may touch Rs 2 lakh crore this week,” said J Moses Harding, head of ALCO (asset liability committee) and economic and market research at IndusInd Bank. In the inter-bank money market, one-day call rates rose on Monday to 7.72 per cent, compared to Friday’s close of 7.67 per cent.
“The government can’t go with the borrowing programme with a liquidity deficit of Rs 1.5 lakh crore. So the government spending will flow into the system and ease the deficit,” said Anoop Verma, vice-president, Development Credit Bank. Once the government starts spending, LAF borrowing would fall to about Rs 80,000 crore, dealers said. They added that RBI may do one open market operations purchase of government bonds this week, to comfort the liquidity. However, that will help bring down the deficit only by about Rs 10,000 crore.
