Banks tap RBI for Rs 62,000 cr

Central bank’s repo window sees highest use since the credit crisis

Banks raised nearly Rs 62,000 crore on a net basis today through the two liquidity-adjustment facility (LAF) operations conducted by the Reserve Bank of India to tide over the liquidity crunch.
This is the highest level of net borrowing from RBI since October 31, 2008, when banks raised over Rs 65,000 crore in a day. The huge liquidity support had been sought at the time, as banks were wary of lending to each other at the height of the global financial turmoil and the payment of advance tax in September 2008 had added to the crunch.


WIDENING WINDOW
Date Amount parked via
reverse repo Call
amount

Call
rate
May-21 47,530 139 2.50-3.85
May-24 4,540 12,541 2.50-4.20
May-25 8,890 8,433 2.50-4.20
May-26 5,685 8,879 2.50-4.20
May-28 6,215 352 2.75-4.30
May-31 -3,710 11,362 2.80-5.30
Jun-1 -5,575 9,409 2.90-5.40
Jun-2 -12,775 6,171 2.50-5.40
Jun-3 -8,095 6,456 2.95-5.35
Jun-4 -16,875 393 2.90-5.30
Jun-5 NIL 516 2.90-5.30
Jun-7 -61,920 5,847 2.85-5.40

- Since May 31, banks have availed of funds via the repo route and are net borrowers during the liquidity adjustment facility (LAF) operations
- No LAF operation was conducted on June 5
- Amount in Rs cr, rate in % Source: RBI, Clearing Corporation

But, unlike the days of the financial meltdown, when market players accessed cash at over 20 per cent from the call money market, rates remained in the 2.85-5.40 per cent band and volumes seemed to have stabilised. A dealer said banks were now opting for RBI’s repo window, as rates were marginally lower, at least for some of the banks. Besides, there is uncertainty that banks will be able to get the funds at one go, unlike the repo window.

In the collateralised borrowing and lending obligations (CBLO) space that is also accessed by mutual funds, insurers, bond houses and non-banking finance companies, rates hovered in the 5.25-5.40 per cent band. Volumes were lower at Rs 39,574 crore today as against nearly Rs 45,000 crore since May 21, when the auction for third generation (3g) mobile spectrum ended.

Today, dealers said, banks accessed funds through the central bank’s repo window as they wanted to ensure adequate availability of cash ahead of the reporting fortnight. Typically, banks front-load their borrowings and keep cash in advance.

For the last two weeks, liquidity has tightened due to telecom companies paying nearly Rs 68,000 crore as spectrum fee for 3G services. Liquidity is expected to remain tight as companies have to pay the first installment of advance tax by June 15. “We expect the situation to remain tight this month and even in early July,” said an SBI executive.

Apart from the 3G payments, there is pressure due to foreign institutional investors continuously selling in the Indian markets for the last few days.

As FIIs have been withdrawing rupee from the Indian market to purchase dollars, there is added pressure in the local money market, dealers said. So far, in May and June, overseas investors have sold a net amount of $2 billion (over Rs 9,000 crore) worth of shares. What is expected to add to the liquidity pressure is the auction for broadband wireless access (BWA) spectrum for which companies have already submitted bids in excess of Rs 25,000 crore. The market expects that the government could fetch as much as Rs 40,000 crore. This would mean that the companies will raise funds to meet the payment needs.

While the RBI has announced steps to tide over the crunch, banks said most of them do not need to drop the level of SLR holdings below the 25 per cent level to access additional funds. RBI has allowed a 50 basis point reduction and is also conducting a second LAF. “It is an enabler but at the moment we do not need it,” said a bank chairman. Also, the cash management bills that the government used to raise funds for a short period and the reduction of the treasury bill auction size for June from Rs 37,000 crore to Rs 15,000 crore is expected to have an impact over the next few weeks and will not provide immediate relief to banks.