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Banks’ daily average borrowing from the Reserve Bank of India is likely to be above Rs 1-lakh crore through this month due to advance tax payments by companies and slower deposit growth, say treasury officials.
That banks, barring the large public sector banks, are facing liquidity tightness due to slowdown in deposit growth is underscored by the fact that out of the last nine working days in February, on eight occasions the borrowing from the Reserve Bank of India was over Rs 1-lakh crore.
On Friday, banks borrowed Rs 1.03-lakh crore from RBI’s daily liquidity adjustment facility (LAF).
“Liquidity tightness may prompt the RBI to buy more securities through the open market operations (OMO) route to the extent of Rs 16,000 crore in March,” said N. S. Venkatesh, Chief General Manager, Head of Treasury, IDBI Bank.
OMOs are conducted by the RBI through sale/purchase of government securities to adjust liquidity conditions.
“The deposit growth has been muted. Banks are facing liquidity crunch. Hence, they are borrowing,” Venkatesh said.
Govt spending
Bankers believe that liquidity conditions will ease only if government spending pick ups. Government spending has slowed down during the current financial year.
“Government spending is not really taking place. Last week, the Government cancelled an auction of government securities for raising Rs12,000 crore. So the liquidity deficit will continue at around Rs 1-lakh crore for some more time,” said S. Srinivasaraghavan, Executive Vice-President, Treasury, Dhanlaxmi Bank.
Moreover, banks will face liquidity crunch companies once companies start borrowing to make advance tax payments in mid-March.
With a view to increase deposit growth, big banks such as State Bank of India and Punjab National Bank have raised interest rates on term deposits. Other banks are expected to follow suit to boost liquidity.
The hike in deposit rates will boost deposit growth, thereby increasing liquidity in the banking system.
deepa.nair@thehindu.co.in
beena.p@thehindu.co.in
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