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Informist, Tuesday, Dec. 17, 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% on Tuesday as demand for funds eased towards the end of trade, with most banks having met their funding requirements earlier in the day, dealers said. The one-day call money rate ended at 5.75%, as against 6.70% on Monday.

According to data on the RBI's website, the liquidity deficit jumped to INR 1.10 trillion on Monday from a surplus of INR 335.33 billion on Sunday. The deficit was the highest since Jun. 26. Outflows for corporate advance tax payments which started from Friday have drained around INR 1.25 trillion to INR 1.75 trillion from the banking system, dealers said.

"If you see, the surplus has sharply come down from the previous day's figure, which indicates that a major chunk of the outflows took place on Monday," a dealer at a state-owned bank said. "Probably around INR 1 trillion would have left the banking system, liquidity on Monday which is inclusive of payments for gilt auction." 

Apart from outflows for advance tax, outflows of INR 370 billion due to payment for government bonds auctioned on Friday also took place on Monday, dealers said. The huge payment amount also led banks to decrease funds parked with the central bank through the standing deposit facility, dealers said. According to data from the RBI's website, funds parked under the standing deposit facility fell to INR 762.41 billion against INR 899.24 billion on Sunday. 

The impact of the liquidity crunch was seen in the borrowing through the marginal standing facility, which rose to INR 248.24 billion on Monday against INR 178.96 billion on the previous day, as per the RBI's data. 

Consequently, money market rates also shot up sharply, dealers said. In the first hour of trade, the weighted average call rate was 6.69%, while the weighted average triparty repo rate was traded at 6.83%. During the day, the central bank conducted two variable rate repo operations in order to ease the pressure on banking system liquidity and money market rates, dealers said. 

"RBI knew that liquidity would be tight due to advance tax outflows, this is why they had announced a three-day VRR," a dealer at a private bank said. "After seeing the first tender being oversubscribed, another VRR was conducted. " 

At the three-day variable rate repo auction held at 1000-1030 IST, the central bank took bids worth INR 500.05 billion at a cut-off of 6.54%. The central bank had received bids worth INR 835.70 billion.

Seeing strong demand at the three-day repo tender, the central bank conducted an overnight rate repo auction at 1200-1230 IST for a notified amount of INR 250 billion. Many banks had expected the auction to be fully subscribed. However, the overnight repo tender received INR 231.88 billion, which was taken by the RBI at a cut off rate of 6.51%. 

"Many people were expecting the auction to get fully subscribed, but that did not happen, probably because the TREPs (triparty repo rate) had cooled off by then," a dealer at a state-owned bank said. At 1230 IST, the triparty repo rate was traded at 6.69% against the day's high of 6.77%, according to data from Clearing Corp. of India. 

During the day, some dealers expect minor outflows for advance tax. Apart from that, no other major inflows or outflows took place, dealers said. Going forward, further pressure is expected on the liquidity and money market rates due to outflows for goods and services tax payments, which may start from Friday, dealers said.

OUTLOOK

* On Wednesday, the one-day call money rate may open near the RBI's marginal standing facility of 6.75% due to demand for funds from banks.

* During the day, the call rate is seen in a range of 6.00-6.85%, dealers said.

CALL RATE

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

6.75%--Tuesday's open for one-day loans

6.70%--Monday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At MSF; liquidity deficit over 5-mo high on advance tax outflows

MUMBAI – The interbank call money rate was at the Reserve Bank of India's marginal standing facility of 6.75% on Tuesday due to high demand for funds from banks as the liquidity deficit in the banking system was at its highest level since late June, dealers said. At 0950 IST, the one-day call money rate was 6.75%, as against 6.70% for one-day loans on Monday.

According to data on the RBI's website, the liquidity deficit widened to INR 1.10 trillion on Monday from a surplus of INR 335.33 billion on Sunday. "Outflows for advance tax payment began on Friday, but the major chunk of it left the system on Monday," a dealer with a state-owned bank said. "There was payment for (government securities) auction, too, so it led to the liquidity falling into a deficit."

Outflows for advance tax likely drained liquidity from the system to the tune of INR 1.10 trillion–INR 1.50 trillion, dealers estimated. Liquidity was also pressurised by outflows of INR 370 billion for payments of government securities on Monday. "The deficit may widen further in the coming days, as there are no significant inflows until the month-end spending, and banks also need funds for GST (goods and service tax) outflows," a dealer with another state-owned bank said. 

Dealers expect the RBI's three-day variable rate auction of INR 500 billion from 1000-1030 IST to provide some respite to banking system liquidity and help cool off money market rates. "The (money market) rates are trading quite high because of liquidity crunch, I feel if the VRR is well received then the rates can cool down in the second half," a dealer at a state-owned bank said. "I think in the second half, the rates will come down to 6.50-6.60%." 

Borrowing by banks through the RBI's marginal standing facility has also risen slightly owing to the sharp drop in systemic liquidity, dealers said. On Monday, banks borrowed INR 248.24 billion from the RBI through the marginal standing facility, compared with INR 89.52 billion on Friday. Dealers said rates in the money market are expected to remain on the higher side going forward, as liquidity conditions are likely to be tight despite the RBI's decision to cut banks' cash reserve ratio, which came into effect on Saturday.

Following are the other highlights:

* The weighted average call rate was 6.83%, against 6.70% on Monday.

* The weighted average rate for triparty repo was 6.69%, against 6.69% on Monday.

* Reversal of the standing deposit facility will add INR 762.41 billion to the banking system, while reversal of the marginal standing facility will drain INR 248.24 billion.

* During the day, the call rate is seen in a range of 6.20-6.90%. (Kabir Sharma)

End

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

Edited by Akul Nishant Akhoury

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