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Informist, Monday, Sep 16, 2024

By Richard Fargose and Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% today even as volumes slumped on account of low demand for funds from banks, dealers said. Banks had factored in today's scheduled holiday for Eid-e-Milad while borrowing funds on Friday, they said. The call money market rate for one-day loans settled at 6.00%, as against 6.50% for the 4-day loans on Friday.

Money markets were scheduled to be closed today for Eid-e-Milad, but the holiday was shifted to Wednesday by the Maharashtra government. The Reserve Bank of India on Saturday said the transactions scheduled to be settled or reversed on Tuesday would continue to be so. 

During the day, the deals in the money market remained subdued. The call money rate, after opening at 6.10%, traded below the RBI's standing deposit facility rate of 6.25% for the most part of the session. The call money market reported deals worth just 1.28 bln rupees today against usual daily volumes of 90 bln-100 bln rupees.

Money market participants had borrowed or lent funds on Friday considering four-day maturity, as today was earlier notified as a money market holiday by the RBI. 

Most banks had planned their funding requirements for today on Friday itself before the holiday got postponed to Wednesday, dealers said. "Banks have adequate funds amid the surplus systemic liquidity and the outflow for the advance tax payment has exited the system, so banks did not have any need to borrow aggressively at the call money market today," a dealer with a private bank said.

Liquidity surplus in the banking system narrowed to 1.35 trln rupees on Sunday from 1.96 trln rupees on Thursday, according to RBI data. The liquidity surplus was reduced on account of outflows for the payment of advance tax, dealers said. "Major outflows moved out of the (banking) system on Friday, some remaining amount would have left today," a dealer with a state-owned bank said. The total outflow for the advance tax payment is estimated at around 1.25 trln rupees, dealers said.

On Tuesday, the RBI will conduct a three-day, 1-trln-rupee variable rate repo auction. "Overall, the systemic liquidity is in surplus, but there are some banks with tight liquidity conditions," a dealer with a state-owned bank said. "Those banks will likely borrow funds at the VRR auction."  

According to RBI data, banks parked 1.37 trln rupees with the central bank under the standing deposit facility on Friday, against 962.75 bln rupees on Thursday. 
 

Amid surplus liquidity, banks increased their cash balances with the RBI. On Sunday, banks' cash balance with the RBI stood at 10.10 trln rupees against the average daily cash reserve requirement, which is 9.90 trln rupees. 

The following are the other highlights:

* The weighted average call rate was 6.03%, against 6.62% on Friday.

* The weighted average rate for triparty repo was 6.63%, against 6.43% on Friday.

* Reversal of the standing deposit facility added 1.07 trln rupees to the banking system, while reversal of the marginal standing facility drained 46.65 bln rupees. 

OUTLOOK

* On Tuesday, the two-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

6.00%--Today's close for one-day loans

6.10%--Today's open for one-day loans

6.50%--Friday's close for four-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: No trades struck as fund requirements met till Tuesday 

MUMBAI – There were no trades struck in the interbank call money market until 1039 IST as banks had already met their funding requirements until Tuesday, dealers said. The four-day call money market rate ended at 6.50% on Friday.

Liquidity in the banking system was in a surplus of 1.36 trln rupees on Friday, compared with 1.96 trln rupees on Thursday. The narrowing down of surplus liquidity is owing to the outflows for advance tax payments, dealers said. "Around 1.25 trln rupees is expected to leave the (banking) system through the tax outflows," a dealer with a state-owned bank said. "Major outflow has already taken place on Friday, but today some minor outflow for the remaining amount might leave the system."   

Money markets were scheduled to be closed today due to Id-e-Milad, but the holiday was shifted to Wednesday by the Maharashtra government. The Reserve Bank of India said on Saturday that transactions scheduled to be settled or reversed on Tuesday would continue to be so. Only transactions under the liquidity adjustment facility framework were changed to today from Tuesday. Since the money parked in the standing deposit facility was much higher than that in the marginal standing facility, the return of that cash flow was also a net positive for banks, dealers said.

During the day, interbank borrowing rates are expected to remain in a subdued range as banks had already borrowed the required amount on Friday at the 4-day call rate, dealers said. "The surplus liquidity is still comfortable and banks have borrowed funds according to their needs on Friday, hence the trading in the money market might be moderate during the day," a dealer with a private bank said.

Despite the surplus liquidity, on Friday, the RBI announced a three-day, 1-trln-rupee variable rate repo auction to be held on Tuesday. Market participants are puzzled regarding the reasoning behind the central bank's decision to conduct a variable rate repo auction. "The central bank may be expecting the surplus liquidity to narrow down further on account of the advance tax outflow and, therefore, wants to inject additional liquidity into the system," a dealer with a state-owned bank said. Outflows for goods and services tax are scheduled to begin at the end of this week or early next week, dealers said.

There were only a handful of trades in the triparty repo market as well, suggesting the lack of demand for funds. There were no technical glitches with the interbank call money dealing system on Clearing Corp of India Ltd, dealers said. Banks increased cash balances with the RBI. They maintained 10.12 trln rupees on Friday, higher than the average daily cash reserve requirement of 9.90 trln rupees for the current fortnight Sep 20, according to the data.

The following are the other highlights:

* The weighted average rate for triparty repo was 6.60%, as compared to 6.43% on Friday.

* Reversal of the standing deposit facility added 243.61 bln rupees to the banking system, while reversal of the marginal standing facility drained 14.35 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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