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NHB and Sidbi officials put the combined demand for funds in the past 45 days at Rs 5,000 crore.
According to bank executives, the liquidity has been under immense pressure after the Reserve Bank of India (from July 15) began to take steps to suck out liquidity from the system to curb the rupee slide. This has pushed the interest rates high in money markets.
It had made the job of managing assets and liabilities a daunting task. The pressure on interest margin is also building up with low credit growth and higher provisions for bad loans.
“We have to look for every possible avenue to get relatively cheap funds. The refinance facility of NHB and Sidbi provides one such option,” said an executive with a large public sector bank.
The amount of refinance assistance these institutions can provide is linked to existing loan portfolio in specific segments such as small and medium enterprises and housing portfolio.
The money is scarce and what is available come at a steep cost. The funds up to one year command double-digit rates. RBI charges banks 10.25 per cent for borrowing under the marginal standing facility (MSF). RBI has put cap on banks to get overnight money at liquidity adjustment facility (LAF). It charges 7.25 per cent to draw money at LAF.
The MSF is the rate at which banks can borrow from the RBI at an elevated rate against government securities during times of tight cash.
A Sidbi official said: “Generally, the demand is higher in the fourth quarter of financial year (January-March). But we have seen a spurt in past few weeks, especially after RBI took steps to squeeze liquidity to curb rupee slide. The demand has been in the region of Rs 3,000 crore.”
This demand is at present being met though resources from Sidbi’s balance sheet, said S Muhnot, chairman and managing director of Sidbi. “Keeping in demand and supply conditions, the rates we charge for refinance are higher by 50-75 basis points than those under normal refinance window.”
Banks are seeking refinance for 6-12 months’ duration on the expectation that tight money supply conditions may stay for many more months. R V Verma, chairman of NHB, a Delhi-based refinance entity for housing sector, said the demand for money from banks and housing finance companies has been much high in the past 45 days. It is in the region of Rs 2,000 crore and expects it to reach to Rs 3,000 crore, he added.
NHB did the refinancing of Rs 17,500 crore in the year ended June 2013 and expects to disburse Rs 20,000 crore under the refinance window. NHB follows July-June financial year.
