Liquidity deficit in the banking system is at a three-and-a-half-month high, owing to festive season demand from banks and weekly auction of gilts. Today, banks borrowed Rs 86,260 crore under the repo auction of Reserve Bank of India (RBI)’s daily liquidity adjustment facility (LAF), compared with Rs 78,185 crore yesterday.
On July 3, borrowings under LAF window stood at Rs 96,315 crore. “As we go into the busy season and festive season-related seasonal currency withdrawals take effect, there will be some liquidity tightening,” said Ananth Narayan, joint chief of wholesale banking, South Asia, Standard Chartered Bank. In the last month, daily average borrowing by banks under LAF window stood at Rs 52,910 crore.
In its monetary policy review last month, RBI had cut the cash reserve ratio (CRR) by 25 basis points to 4.5 per cent of net demand and time liabilities. CRR is the amount of funds banks have to keep with RBI.
J Moses Harding, head, asset liability committee and economic and market research, IndusInd Bank, says liquidity deficit may stand at about Rs 1,00,000 crore if RBI doesn’t cut CRR further.
A bankers’ poll conducted by RBI earlier this month showed most bankers wanted further cuts in CRR. Many economists feel in the second quarter review of monetary policy on October 30, RBI may cut CRR by another 25 basis points. This would help reduce borrowing by banks under LAF window.
According to the issuance calendar for marketable dated securities released last month, RBI would auction gilts worth Rs 2,00,000 crore in the second half of this financial year. Of these, gilts worth Rs 13,000 crore would be auctioned on Friday.