The liquidity crunch has prompted some private sector financial players to seek government guarantees on inter-institutional borrowings, besides other measures from the Reserve Bank of India (RBI) to ease tight conditions in the market.
The head of a large financial conglomerate told Business Standard that the government should provide guarantees to inter-institutional borrowings and RBI should open the repo window to mutual funds to help them raise money. The option of guaranteeing inter-institutional borrowing and lending is being considered in many developed markets as banks and other players are wary of dealing with each other in the wake of the financial turmoil.
“There is no crisis of confidence (in India). So, I do not think there is a need to guarantee inter-bank lending. Given the prospects of improvement in liquidity, I do not think more steps are necessary in the near-term to make more resources available,” said Bank of Baroda CMD M D Mallya.
“Liquidity conditions will improve in some time as Rs 60,000 crore will be released into the system. The action has had a positive effect,” added Dena Bank CMD P L Gairola.
According to the Clearing Corporation of India website, call rates fell to 9.4 per cent on Saturday, compared to the weighted average rate of nearly 19.69 per cent on Friday, when RBI announced reduction in the cash reserve ratio and cancellation of two bond auctions.
A private sector player also suggested the government or RBI should open a window for purchase of commercial papers and certificates of deposit.
Sources said some firms have also approached the government, seeking rollover of papers in which banks have invested but now want to withdraw.
On the suggestion of extending the repo route to mutual funds, a source said law does not permit RBI to do so.
