Banks still strapped for easy cash | india | Hindustan Times
Today in New Delhi, India
Dec 03, 2016-Saturday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Banks still strapped for easy cash

india Updated: Oct 13, 2008 21:21 IST
HT Correspondent
HT Correspondent
Hindustan Times
Highlight Story

Though the government has talked down inter-bank borrowing rates with its words of assurance, the nation’s banks are still has large liquidity gaps — which means they are short of cash to meeting commitments in lending and regulatory requirements.

This is in spite of an infusion of Rs 60,000 crore last weekend by the Reserve Bank of India.

More than half of the 78 banks borrowed Rs 59,575 crore of overnight funds from the RBI, suggesting an acute cash crunch, driven in large measure by the RBI selling off US dollars and sponging off rupees from the system, besides a general dash for cash all around.

“There is tightness of liquidity in the system. Banks will continue to access the RBI’s repo auction window,” said Sunandan Chaudhuri, Economist at SBI Securities, the brokerage arm of country’s largest bank, State Bank of India (SBI).

Repo (short for repurchase) is a facility where the RBI buys government bonds from banks needing liquidity.

The inter-bank lending rates, however, cooled to less than 10 per cent on Monday, the first full trading day after the 150 basis points cut in cash reserve ratio (CRR) came into effect, from 23 per cent hit on Friday last.

The overnight call money rates closed at 8.5 per cent, though the weighted average rate at which over Rs 19,000 crore were borrowed in the call money market was 9.92 per cent, according to the Clearing Corporation of India (CCIL).

The RBI’s interventions in the foreign exchange market to support the rupee from a sharper depreciation is also leads to sucking out of rupee liquidity from the banking system, in addition to the liquidity drain caused by taking out of dollar by foreign institutional investors, who have been sellers in the market in 2008 after record purchases in 2007.

The liquidity position is “easy, not comfortable,”' TS Narayanasami, Chairman of Bank of India, who is also a member of a committee on liquidity set up by the government, said somewhat cryptically.

Narayanasami, who is also the chairman of the Indian Banks’ Association said more steps were required to improve funds availability in the banking system and that more steps for liquidity infusion will come from the RBI.