Some banks in liquidity puzzle | india | Hindustan Times
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Some banks in liquidity puzzle

india Updated: Nov 26, 2008 20:19 IST

What’s going on in some banks? While the country’s banking system as a whole is looking safe and comfortable, a few banks — possibly in the private sector — are borrowing huge amounts in the overnight money market, signalling an undercurrent of liquidity shortage.

On Monday, one bank borrowed Rs 2,400 crore from the Reserve Bank at 6.5 per cent. Five or six banks have been consistent borrowers of large sums from the RBI since the last week, taking in Rs 1,000 crore per day, despite a recent policy that eased the cash reserve ratio (CRR) – the share of deposits that banks must keep with the RBI.

“Only a few banks have excess funds available with them, as suggested by the money parked with the RBI everyday,” said the executive director of a public sector bank, who did not want to be identified.

Surplus funds parked with the RBI has fallen below Rs 10,000 crore from over Rs 25,000 crore early last week.

One reason could be that the banking sector had seen a spike in credit growth to 29.4 per cent last month as companies that could not raise foreign currency loans borrowed in rupees at home.

Another is that banks wary of lending to corporates are parking funds in safe government bonds, showing no improvement in lending mood.

State Bank of India (SBI) is among the few banks that still have funds to spare.

Ashish Parthasarthy, Deputy Treasurer, HDFC Bank, said, “The liquidity situation is quite okay. Banks that have high liquidity requirement would prefer to go to RBI depending upon their surplus SLR (statutory liquidity ratio) investments.”

Wary of lending to the corporate sector, banks are parking funds in safe government bonds, and added Rs. 90,000 crore in such investments between October 10 and November 7 – when RBI’s policies helped inject Rs. 120,000 crore into the system.