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Informist, Friday, Mar. 6, 2026

By Cassandra Carvalho

MUMBAI – The interbank call money rate ended at its highest closing level since Jan. 29--as per data from the NSE Cogencis WorkStation--as outflows for advance payment of taxes and tax deducted at source began Friday, dealers said. However, the call money rate still ended below the Reserve Bank of India's repo rate of 5.25% due to ample liquidity surplus in the banking system, they said. Most outflows for advance tax will kick off Monday, and only minor outflows were due Friday, dealers said.

The three-day call rate ended at 5.15%, up from 4.85% for one-day loans Thursday. The weighted average rate was 5.08%, up from 5.06% Thursday. The weighted average rate in the broader tri-party repo market, which includes mutual funds, was 4.80%, up from 4.79% Thursday. The net liquidity absorbed by the RBI from the banking system -- a proxy for the liquidity surplus -- was INR 3.02 trillion Thursday, higher than INR 2.67 trillion Wednesday, as per data from the central bank.

Outflows of around INR 600 billion are expected between Friday and next week due to payments for advance tax and tax deducted at source, dealers said. However, most banks are sitting on ample liquidity surplus, and do not need to borrow funds yet, dealers said. However, liquidity support is needed from the RBI by late next week, dealers said. Around INR 4 trillion of outflows from the banking system are expected for advance tax and GST payments this month. Nearing the end of the March quarter, credit growth is also expected to pick up, and banks may also need funds to repay maturing certificates of deposits, dealers said.

"We will also have deposit outflows and CD maturities along with the tax payments and credit offtake," a dealer at a state-owned bank said. "We have told RBI that OMO would be better than VRR because that will also benefit G-sec yields, and the liquidity is permanent."

The RBI Friday said it will conduct INR 1.00 trillion of open market operations auctions to buy gilts in two tranches this month, with the first auction of INR 500 billion on Monday. Some dealers were expecting the announcement, having provided such feedback to the central bank. Informist reported that the RBI had called some banks asking for their feedback on what liquidity steps it should take to infuse liquidity into the banking system, such as through an open market operations auction or a variable rate repo auction. Due to such pro-active steps by the RBI, the call rate is not seen hitting the repo rate even next week, dealers said. The RBI has also been buying gilts on-screen, to offset the liquidity drain from its dollar sales in the foreign exchange spot market, dealers said. The central bank had purchased gilts worth INR 99 billion in the secondary market in the week ended Feb. 27, data released Friday showed.

Credit growth has slowed slightly but is expected to pick up by end of this month as banks look to show profitable business in their quarterly earnings, dealers said. Latest data from the RBI shows bank loans were down by INR 431.29 billion on fortnight as on Feb. 15.

"We have a line-up of credit pending for sanctions (internal approval) for this month," a dealer at another state-owned bank said. "This time industry and manufacturing (sector) credit is a little less, but there's good demand from consumer and NBFCs (non-banking financial companies)."

OUTLOOK

Saturday, the two-day call rate is seen below the repo rate even as payments for tax are under way due to comfortable liquidity in the banking system, dealers said. Volumes are likely to be thin, as is usually seen on Saturdays. Dealers expect the call money rate to move in a range of 4.50-5.15%.

On Monday, traders will track the liquidity figures amid outflows for tax payments. Traders will also track participation and the result of the first tranche of the OMO auctions Monday, which could add up to INR 500 billion of durable liquidity to the banking system.

CALL RATE

5.15%--Friday close for three-day loans

5.15%--Friday open for three-day loans

4.85%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; banks meet early cash demand from hefty surplus

NEW DELHI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.25% Friday due to the comfortable surplus liquidity in the banking system. Primary dealerships were on the borrowing side in the call market but banks were able to meet the requirements using their liquidity buffers, dealers said.

The three-day call money rate was at 5.15% at 1013 IST, up from 4.85% for one-day loans at close Thursday. The weighted average call rate was 5.15%, up from 5.06% the previous day. The weighted average rate in the broader triparty repo market, which includes mutual funds, was at 4.81% so far Friday from 4.79% Thursday. 

According to the latest data, the net liquidity absorbed by the RBI from the banking system - a proxy for the liquidity surplus - was INR 3.02 trillion Thursday, higher than INR 2.67 trillion Wednesday. The increase corresponds to the decline in cash balances that banks held for regulatory requirements, dealers said. Cash balances of banks with RBI as of Wednesday were INR 7.68 trillion, down from INR 7.92 trillion Wednesday, against the requirement of INR 7.64 trillion for the fortnight ending Mar. 15.

Traders expect the bulk of excise duty and tax deducted at source payments to the government to be transacted Friday. These are likely to lead to outflows between INR 600 billion and INR 700 billion between Friday and Saturday, dealers said. Call money rates are expected to remain below the repo rate as these outflows take place due to the comfortable surplus liquidity, they said.

"Liquidity conditions have not really changed much overnight, it has been the same situation over the past few days, " a dealer at a state-owned bank said. "The outflows for excise will probably get done mostly today (Friday), most people will avoid waiting for Saturday. But whatever that outflow is, it will not have a large impact since surplus is at INR 3 trillion."

Meanwhile, the RBI's simultaneous intervention in the government bond and foreign exchange markets were likely wiping out any impact on liquidity from its actions, dealers said. Banks have likely sold spot dollars for the RBI this week to prop up the rupee after it fell to a record low of 92.3025 a dollar Wednesday after the outbreak of armed conflict in West Asia last weekend. At the same time, 'Others' – a category that includes the central bank, insurers and provident funds – have net bought gilts worth around INR 450 billion in the secondary market this week, according to Clearing Corp. of India data. Bond dealers peg the RBI's share of these purchases at around 90% of the total, effectively sterilising around $4.5 billion of spot dollar sales. (Aaryan Khanna)

End

US$1 = INR 91.74

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

Edited by Ashish Shirke

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