A cash crunch in the country's banking system, which drove the one-year overnight indexed swaps to a 20-month high on Friday, should begin to ease by the end of July, bankers said on Monday after meeting Reserve Bank of India officials.
Cash available with banks has been tight after telecom firms pulled out cash to pay for 3G licences and broadband spectrum in May and June.
Liquidity is expected to improve by July-end and beyond," said O.P. Bhatt, chairman, State Bank of India.
Bhatt was speaking with reporters after customary talks with the RBI ahead of the July 27 monetary policy, when the RBI is expected to raise rates by a quarter point.
Both bankers and the RBI agree that the current tightness is only a temporary thing and government spending will ease the tightness by this month end," said another banker.
Bhatt said bankers had told the RBI that a 20 per cent loan growth target was achievable in the current fiscal year.
Moreover, the RBI is likely to soon announce a sunset clause with a deadline of June 30, 2011 for all loans in the erstwhile BPLR system to migrate to the new base-rate model. Banks have approached the RBI with request for such a move.