INSUBCONTINENT EXCLUSIVE:
Indian lenders have continued to borrow in the midst of the worst liquidity crisis in the banking system in nearly 30 months to tide over
the strong demand for funds during the festival season as loans also dried from non-banking finance companies.
The daily net borrowing was
in the range of Rs 71,000 crore and Rs 1.4 lakh crore in the month since October 8 this year, Bloomberg data showed
The deficit has been the sharpest since between October 2015 and June 2016.
While bank borrowing rose through the Liquidity Adjustment
Facility, the interbank market is yet to show strains as the overnight call money rates are still hovering around the RBI’s repo rate
The weighted average call rate was at 6.48 per cent on Tuesday.
“The system liquidity shortage in the first week of November was tighter
than usual,” said Saugata Bhattacharya, chief economist at Axis Bank
“One possibility is that the government has garnered more tax revenues and is holding large balances with RBI, having not spent beyond the
normal salary disbursements.”
“Another possibility is larger bank CRR deposits with RBI, due to a large deposit inflow into banks caused
by a likely credit surge due to a diversion from non-bank sources,” said Bhattacharya said.
Cash Reserve Ratio, or CRR, is the portion of
total deposits banks are mandated to set aside
It is now pegged at 4 per cent.
On October 22, bank borrowing peaked at Rs 1.4 lakh crore
The liquidity shortage in the banking system was magnified in the broader market as the non-banking finance companies (NBFCs) found it
difficult to raise money from mutual funds shying away from making new investments
It is RBI’s stated stance to maintain neutral liquidity: neither deficit or surplus.
“The sustained deficit is owing to festivity-led
rise in cash holdings, net foreign portfolio investor (FPI) outflows in October, and some pick-up in banking credit,” said Soumyajit
Niyogi, associate director, India Ratings and Research
NBFC worries too added to the woes
In absence of confidence and normalcy in the market, sustained system level deficit doesn’t auger well for credit market.”
“Tighter
interest rates could crimp credit expansion,” Niyogi said.
About Rs 1 lakh crore worth of commercial papers issued by non-banks matured
further squeezing cash availability.
Bank loans grew by a healthy 14.4 per cent, a fiveyear high during the fortnight to October 26 with
non-banking entities stopping disbursements.
In October, FPIs sold net Rs 38,906 crore worth of domestic debt securities and equities, the
highest monthly outflow this calendar year, data from the National Depository Securities showed.
“The sharp decline in forex reserves
recently is reflecting in domestic liquidity,” said Mahendra Kumar Jajoo, head of fixed income investments at Mirae Asset Global
Investments.
“Without RBI’s open market purchases and repo auctions, the liquidity deficit would have been worse
If dollar inflows improve, it will positively impact the domestic liquidity condition.”
