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Even if the liquidity situation has become comfortable with banks borrowing coming down sharply from the Reserve Bank of India's liquidity adjustment facility and marginal standing facility, banks have started to build up balance sheet ahead of financial year end to meet their yearly targets.
Today banks have borrowed close to Rs 21,000 crore from the repo window which is lowest in the last one and half month while borrowing from the marginal standing facility was a mere Rs 395 crore yesterday. Today's MSF borrowing figures will be by RBI published tomorrow morning. In the last one month the daily average borrowing under MSF stood below Rs 4,000 crore compared with almost Rs 10,000 crore a month ago.
According to bankers, hike in deposits will be required to beef up resources as credit demand is expected to peak in the last quarter of the financial year.
Manipal-based Syndicate Bank has announced 25 bps hike in retail deposit rate across some maturities and launched a new deposit scheme offering 9.25% for 444 days.
"Some of our deposits are coming up for renewal. In addition, there are credit demand in the pipeline which will be disbursed in the current quarter," said SK Jain, chairman and managing director, Syndicate Bank. The public sector lender is focussing more of retail deposit as it has almost stopped accepting bulk deposits from corporate houses which come at a higher cost.
Private sector lender Kotak Mahindra Bank has also hiked deposit rate by 25 bps/ The bank will now offer 9.25% per annum for the 390-day deposit and 9% per annum for deposits of 181-269 day tenure.
According to bankers, deposits are mainly flowing in the one year category while the three year and five years buckets have not seen much growth.
Liquidity, while it is comfortable now, but may be under pressure next month when corporate starts paying advance taxes next month. In addition, since government will control its expenditure to meet the fiscal deficit target of 4.8%, bankers are wary that these factors would put pressure on liquidity. Liquidity will also tighten due to the 2G spectrum auctions which are seeing encouraging response.
“Government will be spending to the extent of receipts they get. During advance tax week there will be some kind of liquidity outflow from the system but immediately thereafter they may be spending. So on a net basis we do not expect the government flows to emerge as a big change in liquidity. We have also seen additional comfort from RBI. For example in December they increased the size of the term repo to take care of advance tax outflow. So RBI may step in to infuse liquidity if we see very tight liquidity condition. Keeping these things in mind liquidity should be fairly easy for the rest of the quarter,” said R Sivakumar, head of fixed income and products, Axis Mutual Fund.
In the post-monetary policy conference call with analysts and researchers RBI governor Raghuram Rajan said, “Where the liquidity tightness is temporary, we do term repos, where we need to accommodate more permanent liquidity needs to meet the overall credit growth of the economy, we do Open Market Operations (OMOs).”
Overnight rates are currently at levels near the repo rate which was raised by 25 basis points to 8% in January. “The repo window is sufficient to meet the present liquidity shortfall. Liquidity is comfortable due to government spending flowing back into the system. February will be a comfortable month for liquidity,” said Debendra Kumar Dash, assistant vice president (treasury), Development Credit Bank.
