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Informist, Tuesday, Jul. 1, 2025

By Siddhi Chauhan

MUMBAI – As the first day of the 10-hour call money trading session concluded Tuesday, market participants reported minimal impact on volumes, dealers said. The interbank call money rate ended sharply below the Reserve Bank of India's standing deposit facility rate of 5.25% owing to low demand for funds amid ample liquidity, dealers said. The one-day call money rate settled at 4.90%, down from 5.25% Monday.

The call money market volume reached INR 160.16 billion, up from INR 132.25 billion Monday but generally consistent with typical market volumes, dealers said. Of the total 357 call market trades Tuesday, eight trades amounting cumulatively to INR 2.50 billion took place between 1700 IST and 1900 IST, data from Clearing Corp. of India showed.

"Call money volumes have slightly risen, but it has nothing to do with market extension," said a dealer at a private-sector bank. "In fact, most of the trades had already taken place by 1800 IST. The volumes are up because banks have enough funds to lend due to surplus liquidity."

The overall market volumes shot up to INR 6.78 trillion, up from INR 6.10 trillion seen Monday, driven by the tri-party repo market, dealers said. Volumes in the widely participated tri-party repo market were at INR 4.61 trillion, up sharply from INR 3.96 trillion Monday. Participants attributed the rise in overall market volumes to ample cash available with both banks and mutual funds, dealers said.

"The volumes in TREPs (tri-party repo market) were higher today (Tuesday) because both mutual funds and banks are flush with funds," a dealer at a state-owned bank said. "Redemption pressures are over and mutual funds have received inflows, so the rates were pretty low in TREPs, attracting investors to borrow from here." 

Liquidity in the banking system was comfortable owing to inflows from month-end spending by the government, dealers said. Inflows from the government spending are likely to have added INR 1.50 trillion to INR 2.00 trillion, dealers said. However, the impact of these inflows were not visible on the system liquidity, they said. The RBI net absorbed INR 2.62 trillion from the banking system Monday, largely unchanged from Sunday's figure.

Banks have increased their cash reserves with the RBI. Monday, they parked INR 10.16 trillion, higher than INR 9.79 trillion Sunday. For the current fortnight, which commenced Saturday, the average daily cash reserve requirement is INR 9.52 trillion, according to RBI data.

Going forward, market participants will assess the impact of the extension of the call market timings on funds parked by banks under the standing deposit facility, dealers said. "I think banks would have parked funds at SDF excessively today (Tuesday) as well," a dealer at a state-owned bank said. "I feel this way because hardly any major trade happened after 0500 (1700 IST). It is quite unlikely that someone will be able to lend at a rate higher than the SDF (of 5.25%) during the extended time." According to latest data from the RBI, funds parked under the standing deposit facility Monday amounted to INR 1.90 trillion, up from INR 1.54 trillion Sunday.

The RBI Wednesday had said the call money market would close at 1900 IST starting Tuesday, against the previous closing time of 1700 IST, in line with the recommendations last month of a working group headed by RBI Executive Director Radha Shyam Ratho. The central bank had also said that the collateralised tri-party repo and market repo segments would close at 1600 IST from Aug. 1. All money markets open at 0900 IST.

OUTLOOK

* Wednesday, the one-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity on month-end inflows from the government.

* During the day, the call rate is seen in a range of 4.90-5.50% and the tri-party repo rate in a range of 4.80-5.30%.

CALL RATE

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

5.35%--Tuesday's open for one-day loans

5.25%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as demand subdued post month-end inflows

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% as demand for funds was subuded post inflows from the government's month-end spending, dealers said. Lack of any significant outflows for the day and anticipation of the remainder of month-end inflows also kept money market rates low, they said. At 0930 IST, the one-day call money rate was at 5.35%, against 5.25% at close on Monday. The weighted average call money rate was also at the same level. 

"Yesterday (Monday), there was major inflows and that you can see in the amount that banks have kept as reserves," a dealer at a state-owned bank said. "For most banks, there is no need right now to borrow additional funds, so we might see the (money market) rates below repo today (Tuesday)."

The RBI net absorbed INR 2.62 trillion from the banking system on Monday, largely unchanged from Sunday's figure. However, banks have increased their cash reserves with the RBI. On Monday, banks parked INR 10.16 trillion, higher than INR 9.79 trillion on Sunday. For the current fortnight, which commenced on Saturday, the average daily cash reserve requirement is INR 9.52 trillion, according to RBI data.

Banks had maintained a higher than required sum as reserves as they anticipated high credit disbursals owing to the quarter-end, dealers said. "Traders would have wanted to keep funds for their disbursal needs, and that is the reason that even in the last VRRR (variable rate reverse repo) auction, the participation was low," a dealer at a private sector bank said. 

Meanwhile, traders do not expect any significant change in the call market volume on account of extension of the market's trade timings effective Tuesday. The call money market will close at 1900 IST from Tuesday, compared with 1700 IST earlier, in line with recommendations of a working group headed by RBI Executive Director Radha Shyam Ratho last month. According to dealers, the major portion of trade volumes in the call market is executed by 1500 IST, and only some small banks might remain active beyond 1700 IST to meet some sudden funding requirements.  (Vidhushi RajPurohit)

End

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

Edited by Rajeev Pai

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