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Informist, Wednesday, Jan. 22, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Wednesday as demand for funds from banks eased towards the end of trade, dealers said. The one-day call rate ended at 6.20% against 5.75% on Tuesday. However, the weighted average call rate remained above the RBI's repo rate, highlighting the strain on liquidity in the banking system. The weighted average call rate was at 6.56% on Wednesday, against 6.58% at close on Tuesday.

Tight liquidity conditions were also reflected in the amount of liquidity injected by the RBI. On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.71 trillion against INR 2.36 trillion on Monday, as per data from the RBI. The liquidity deficit widened due to payments for outflows of goods and services tax, dealers said.

The remaining outflows for goods and services tax would have drained liquidity from the banking system, dealers said. 

Dealers also said participation from banks was high in the variable rate repo auction on Wednesday--which was for INR 1.25 trillion--as the tri-party rate was trending above the repo rate, making it an attractive borrowing avenue. Banks availed the entire notified amount at a weighted average rate of 6.52%, while the RBI received bids worth INR 1.72 trillion. The weighted average triparty repo rate was 6.59% on Wednesday.

"Some banks might have realised that weighted average triparty rate may not fall below repo rate. This is the reason why they might have borrowed more at the auction," a dealer at a state-owned bank said. "Or maybe they would have thought of earning a spread of around 10 bps points by borrowing at 6.51% at auction and lending at a much higher rate."

Following are the other highlights:

* Reversal of funds parked at the Marginal Standing Facility will drain INR 82.07 billion from the banking system, according to latest data.

* Reversal of funds parked at the Standing Deposit Facility will add INR 438.94 billion to the banking system, according to latest data.

OUTLOOK

* On Thursday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet their reserve requirements.

* During the day, the call rate is seen in a range of 6.00-6.70%, dealers said.

* The RBI will conduct an overnight, variable rate repo auction for INR 1.25 trillion at 1000-1030 IST.

CALL RATE

6.20%--Wednesday's close for one-day loans

6.65%--Wednesday's open for one-day loans

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

India Call: Above repo rate as liquidity gap widens amid GST outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Wednesday due to demand for funds from banks amid outflows on account of goods and services tax payments, dealers said. At 0945 IST, the one-day call money rate was at 6.65% against 5.75% on Tuesday. 

The weighted average call rate was at 6.62% on Wednesday, against 6.61% at 0930 IST on Tuesday. Meanwhile, the weighted average triparty repo rate was at 6.59%, against 6.50% on Tuesday.

On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.71 trillion against INR 2.36 trillion on Monday, as per data from the RBI. The liquidity deficit widened due to payments for outflows of goods and services tax, dealers said.

On Tuesday, outflows for the tax payments drained around INR 800 billion-INR 1 trillion from the banking system liquidity, dealers said. Consequently, banks drew back the funds parked with the central bank under the Standing Deposit Facility on Tuesday, to INR 438.94 billion against INR 786.50 billion on Monday. 

With outflows of around INR 1 trillion-INR 1.5 trillion for goods and services tax, minor payments of the same are left for the day, dealers said. Due to these outflows, banks are expected to participate aggressively in the variable rate repo operation of INR 1.25 trillion being held at 1000-1030 IST, dealers said. 

"Banks' participation in VRRs has been muted as the triparty repo rate was below the repo rate for a few days now. However, that won't be the case today (Wednesday)," a dealer at a state-owned bank said. "But since yesterday, rates have risen above the repo rate because of GST outflows and muted participation from banks in the earlier VRRs." 

Following are the other highlights:

* Reversal of funds parked at the Marginal Standing Facility will drain INR 82.07 billion from the banking system, according to latest data.

* During the day, payments of state government security auction will drain INR 175 billion from the banking system, while no substantial inflows are lined up for the day. 

* During the day, the call rate is seen in a range of 6.00-6.90%. (Siddhi Chauhan)

End

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

Edited by Tanima Banerjee

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