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Informist, Monday, Jun. 16, 2025

By Siddhi Chauhan

MUMBAI – The overnight call money rate Monday ended below the Standing Deposit Facility rate of 5.25%, despite outflows on account of the last tranche of corporate advance tax, as liquidity remained ample, dealers said. "Since it was a holiday on 15th, banks are making the payment (for corporate advance tax) today (Monday). They won't be penalised for that," a dealer at a state-owned bank said. "Even then, rates (money market) are not moving from their previous levels."

The one-day call money rate ended at 4.90%, against 5.00% on Friday for three-day loans. The weighted average call rate settled at 5.30%, down from 5.31% Friday. The triparty repo rate ended at 5.15% against 5.28% on Friday. The weighted average rate in the larger tri-party repo market was 5.22%, up from 5.16% Friday.

Corporate advance tax outflows would have drained INR 1.2 trillion from INR 1.5 trillion from the banking system in two tranches, dealers said. While a small chunk of outflows would have left the system on Friday, a major portion of these outflows took place Monday, dealers said. Despite these outflows, the triparty repo rate and call money rate fell below the Standing Deposit Facility during the day, data from Clearing Corp. of India showed. Even on Friday, the impact of these outflows on money market rates was subdued due to inflows of over INR 1 trillion from buyback and maturity of 5.22%, 2025 bond, dealers said. 

After rising to a three-year high of INR 3.62 trillion on Friday, net liquidity absorbed by the Reserve Bank of India fell to INR 2.80 trillion on Sunday. On Saturday, the liquidity in the banking system was INR 2.79 trillion. Banks attributed this sharp fall in liquidity to excess balance maintained by banks with the RBI for the fortnight ending on Jun. 27. As per prudential guidelines, banks are supposed to maintain an average of INR 9.54 trillion in the fortnight ending on Jun. 27. On Sunday, banks had parked INR 10.22 trillion with the central bank, sharply higher than INR 9.40 trillion Friday.

"Even we have maintained an excess cash balance because of large outflows that are expected to take place this fortnight," a dealer at another state-owned bank said. "Today itself advance tax outflows happened, then GST (goods and services tax) outflows will also start. So we are trying to maintain a higher cash balance while we have funds with us." 

On Tuesday, market participants expect a slight pressure on money market rates as liquidity surplus is expected to fall after the last tranche of advance tax, dealers said. Outflows of INR 250 billion for payment of government security auction will add to the liquidity drain Monday, dealers said. The auction was held on Friday.

OUTLOOK

* On Tuesday, the one-day call rate is likely to open near the RBI's repo rate of 5.50%.

* During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%.

CALL RATE

4.90%--Monday's close for one-day loans

5.35%--Monday's close for one-day loans

5.00%--Friday's close for three-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo as liquidity surplus at 3-year high; redemption aids

MUMBAI – The inter-bank call money market rate opened below the Reserve Bank of India's repo rate of 5.50% Monday as the liquidity surplus jumped to a three-year high, dealers said.

The one-day call money rate opened at 5.35% Monday and, at 1029 IST, the weighted average call rate was at 5.35%. The triparty repo rate, where mutual funds are major lenders, opened at the RBI's Standing Deposit Facility rate of 5.25%. At 1029 IST the triparty repo rate was below SDF at 5.22%, with the weighted average triparty repo rate at 5.23%.

The net liquidity absorbed rose to the highest level since Jun 12, 2022. On Friday, the RBI net absorbed liquidity was at INR 3.62 trillion, significantly higher than INR 2.76 trillion Thursday, central bank data showed. As per the data, funds parked under Standing Deposit Facility on Friday rose to INR 3.02 trillion, up from INR 2.86 trillion Thursday.

The liquidity surplus rose above the INR 3-trillion mark due to inflow from maturity of the 5.22% 2025 bond, which added INR 800 billion into the banking system. Inflows of INR 257.44 billion from bonds bought back by the government also aided liquidity Friday. The buyback auction was held on Thursday.

"The liquidity has risen sharply because the system recieved inflows for maturity of G-sec (5.22%, 2025). Inflows for buyback auction also added around INR 250 billion, a dealer at a state-owned bank said. The rise in surplus was limited due to outflows for advance tax which took place on Friday, dealers said. Market participants expected the last tranche of these outflows to take place during the day, dealers said. 

Market participants don't have a fair estimate of the advance tax outflows that took place Friday, but the total outflows for the same are expected to drain INR 1.2 trillion to INR 1.5 trillion in two tranches, dealers said. "Looking at the current figure, it seems that the outflows were not taken place entirely on Friday," said the dealer quoted earlier. "It is difficult to comment on that, we will have to wait for the latest figure. The remaining outflows will take place today (Monday)." (Vaishali Tyagi and Siddhi Chauhan)

End

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

Edited by Ashish Shirke

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