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Informist, Thursday, Sep 12, 2024

By Siddhi Chauhan

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% today on account of low demand for funds from banks as surplus liquidity in the banking system widened, reversing the trend in the past few days, dealers said. The call money market rate for one-day loans settled at 5.75%, the same as Wednesday's close.

Liquidity surplus in the banking system widened to 1.53 trln rupees on Wednesday from 1.08 trln rupees on Tuesday, according to RBI data. 

The liquidity surplus widened on account of inflows which were not accounted for earlier, dealers said. This created a buzz in the market, resulting in traders speculating about the source of the inflows. While some said that it was government spending, others said the inflows were related to initial public offerings, dealers said.

"No one was expecting such a huge amount of inflows, it doesn't appear to be government spending," a dealer at a state-owned bank said. "It seems that the inflows are because of IPOs that are going on currently. This has also contributed to a rise in SDF (standing deposit facility) as well." 

According to data from RBI's website, banks parked 1.24 trln rupees with the central bank under the standing deposit facility, against 1.04 trln rupees on Tuesday. They did so in order to maintain excess funds ahead of advance tax outflows, dealers said.

Banks being flushed with liquidity was visible from today's subscription at the variable rate reverse repo auction. Banks parked 722.40 bln rupees with the central bank at a rate of 6.49% in the overnight variable rate reverse repo auction for a notified amount of 750 bln rupees today.

This was the highest subscription to a variable rate reverse repo auction since Jul 18. Apart from comfortable liquidity conditions, the tenure of the reverse repo operation also worked in the favour of banks as they were getting a higher rate by parking funds with RBI rather than in money markets, dealers said.

Despite the variable rate reverse repo operation, the weighted average triparty repo rate and weighted average call rate both fell from the previous day as the borrowing that was taking place on anticipation of outflows on Friday cooled down, dealers said.

"Even after VRRR, we are seeing rates to be on the lower side," a dealer at another state-owned bank said. "This is because I am hearing the deposit of advance tax will continue to happen till Sep 15, but the payment will happen after that. So, maybe on Tuesday we will see a rise in rates, but it will remain down tomorrow (Friday)."

The market expects around 1 trln rupees to be drained out of the banking system starting Friday for the advance tax outflows, dealers said. These outflows take place on the 15th of the last month of the quarter, but as money markets are shut on Saturday and Monday, the outflows will happen on Tuesday, dealers said. Money markets are shut on Monday for Id-e Milad. The outflows for advance tax outflows are expected to exert pressure on the banking system's liquidity, resulting in a rise in interbank rates, dealers said. 

The following are the other highlights:

* The weighted average call rate was 6.52%, against 6.54% on Wednesday.

* The weighted average rate for triparty repo was 6.27%, against 6.40% on Wednesday.

* Reversal of the standing deposit facility added 1.24 trln rupees to the banking system, while reversal of the marginal standing facility drained 12.82 bln rupees. 

OUTLOOK

* On Friday, the four-day call money rate may open near the RBI's repo rate due to demand for funds from banks in early trade to meet their reserve requirements.

* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

5.75%--Today's close for one-day loans

6.60%--Today's open for one-day loans

5.75%--Wednesday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Above RBI repo rate; liquidity surplus remains comfortable
 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today, owing to demand for funds from banks early in the day to meet their reserve requirements, dealers said.

At 0930 IST, the one-day call money rate was at 6.60%, against 5.75% at close on Wednesday.

Liquidity in the banking system was in a surplus of 1.53 trln rupees on Wednesday, compared with 1.08 trln rupees on Tuesday. The surplus increased due to likely inflows from government spending, dealers said. "The interbank borrowing rates will likely remain in a moderate range during the day owing to comfortable systemic liquidity," a dealer with a state-owned bank said.

Amid surplus liquidity, banks have been maintaining a higher amount than the statutorily required limit of cash reserve with the RBI. On Wednesday, the banks' cash reserve with the central bank was 10.05 trln rupees against the average daily requirement of 9.90 trln rupees for the current fortnight. "After the narrowing down of surplus liquidity over the weekend, following excise duty payments, banks had built up cash reserves with the central bank during the early part of the week," a dealer with another state-owned bank said.

"Banks have been maintaining a higher cash balance to not have an additional burden after the surplus narrows down owing to outflow of advance tax payment." The payment for the advance tax payment will take place on Friday, dealers said.

Despite surplus liquidity, on Tuesday, banks parked only 250 bln rupees at the two-day, 1-trln-rupee variable rate reverse repo auction. "Banks did not want to lock up their funds ahead of the tax outflows," a dealer with a state-owned bank said. "The interbank borrowing rates were also trading around RBI's repo rate, hence banks did not have opportunity to book arbitrage profit by parking their funds at VRRR." 

Market participants do not expect any major inflows or outflows for the day. The surplus liquidity is expected to narrow down due to the outflows for the payment of advance tax on Friday and the lack of any major inflow in sight during the current fortnight ending Sep 20.

The following are the other highlights:

* The weighted average call rate was 6.60%, as against 6.54% on Wednesday.

* The weighted average rate for triparty repo was 6.35%, as compared to 6.40% on Wednesday.

* Reversal of the standing deposit facility added 1.25 trln rupees to the banking system, while reversal of the marginal standing facility drained 12.82 bln rupees. 

* The call rate is seen in a range of 6.20-6.60% during the day. (Vidhushi RajPurohit) End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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