Comments
To help banks tide over the prevailing tight liquidity conditions in the call money market, the Reserve Bank of India on Wednesday did away the obligation that requires them to seek a specific waiver for default in compliance of minimum holding of government securities when they borrow under the marginal standing facility. In May 2011, banks were allowed to borrow overnight from its marginal standing facility (currently at an interest rate of 9.50 per cent) against their excess government securities holdings as an additional liquidity enhancement measure.
They could also dip a percentage point below the statutory requirement of holding government at 24 per cent of deposits, provided they sought a specific waiver for default in compliance of the limit.
The latest RBI measure on MSF comes at a time when call money rates shot up to trade in 9.45-9.75 per cent range on Wednesday. The tightness in the money markets comes in the wake of outflows from banks due to advance tax payments by India Inc on December 15.
On December 15, banks borrowed Rs 1,11,845 crore from the RBI under its repo window. The tightness in the money markets has prevailed since then. On Wednesday, the banks borrowed Rs 1,64,915 crore from the RBI.
“Generally, call money hovers around the 7.50-8.50 per cent band. However, today it jumped to 9.45-9.75 per cent due to funds crunch in the banking system,” said the treasury head of a public sector bank.
Banks now can take advantage of the arbitrage between MSF and call money. They can borrow from the MSF at 9.50 per cent and deploy the funds in call money at 9.65-9.75 per cent, he explained.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.