Year 2010 is proving to be a year of fund crunch for the Indian banking system.If use of Reserve Bank of India's overnight funding window is an indicator of things, Monday saw banks use the repo route to raise a record Rs 1.59 lakh crore.The high repo borrowings were despite the central bank announcing measures to inject Rs 48,000 crore into the system last Thursday.While the cash position might be tight, bankers are not losing sleep yet. Probably, reflecting the sentiment, interest rate in the call money market -- which is an overnight market used by banks to lend or borrow from other banks -- reached a high of 7%.
RBI's move to lower the minimum holding level of government securities, referred to as the statutory liquidity ratio , has provided some comfort to the market. Compared to the new floor of 24%, banks have significantly higher surplus holdings of government securities.Bankers had factored in additional tightness in the market and expect it to continue till the end of the month when the government pays salaries and pension and government departments step up spending.Apart from RBI's actions last week, the government, which is sitting on a cash pile of over Rs 1 lakh crore said it had lowered its market borrowing to Rs 6,000 crore this week, from the earlier scheduled Rs 11,000 crore, to ensure that adequate amount of cash was available in the system. Last week, RBI had announced that it would purchase bonds to the tune of Rs 48,000 crore over the next one month.The steps from the central bank and government come in the backdrop of cash being drained out of the system as companies paid taxes for the third quarter on December 15.Though advance tax might be the trigger this time, liquidity has remained under strain ever since companies paid over Rs 1 lakh crore in July for use of spectrum, or radio waves, to offer third generation mobile telephony and broadband services.With growth in bank deposits failing to keep pace with the flow of loans, the pressure has only intensified to make the cash position in 2010 tighter than 2008, the year the financial crisis hit the world.
RBI's move to lower the minimum holding level of government securities, referred to as the statutory liquidity ratio , has provided some comfort to the market. Compared to the new floor of 24%, banks have significantly higher surplus holdings of government securities.Bankers had factored in additional tightness in the market and expect it to continue till the end of the month when the government pays salaries and pension and government departments step up spending.Apart from RBI's actions last week, the government, which is sitting on a cash pile of over Rs 1 lakh crore said it had lowered its market borrowing to Rs 6,000 crore this week, from the earlier scheduled Rs 11,000 crore, to ensure that adequate amount of cash was available in the system. Last week, RBI had announced that it would purchase bonds to the tune of Rs 48,000 crore over the next one month.The steps from the central bank and government come in the backdrop of cash being drained out of the system as companies paid taxes for the third quarter on December 15.Though advance tax might be the trigger this time, liquidity has remained under strain ever since companies paid over Rs 1 lakh crore in July for use of spectrum, or radio waves, to offer third generation mobile telephony and broadband services.With growth in bank deposits failing to keep pace with the flow of loans, the pressure has only intensified to make the cash position in 2010 tighter than 2008, the year the financial crisis hit the world.
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