Liquidity deficit in the banking system widened to its highest level in over two months, with call-money traders citing payments for tax deducted at source and excise duty as the reasons. As of Thursday, the liquidity deficit—measured by the amount banks borrowed from the Reserve Bank of India through the repo window—stood at Rs 1.77 lakh crore, according to data from the central bank. On Feb. 28, the liquidity deficit was at Rs 1.89 lakh crore.
This led to the inter-bank call-money rate to rise above the RBI's marginal-standing-facility rate of 6.75% in early trade on Friday as the demand for funds from banks was strong, traders aware of the matter said on the condition of anonymity. At the time of writing, the three-day call-money rate was at 6.65% in comparison to 6.5% for one-day loans on the previous day.
The liquidity deficit rose as banks held excess cash balances with the central bank, according to a call-money trader with a state-run bank.
Banks maintained an excess of cash balance with the RBI to the tune of Rs 18,000 crore at the end of trade on Thursday, the central bank data showed. The average cash-balance requirement under regulatory norms for the fortnight is Rs 9.63 lakh crore.
Market traders are expecting another variable rate repo auction to meet short-term liquidity requirements as-call money rates were near the MSF rate.
Some comfort on the liquidity front can be derived from the reversal of Rs 10,513 crore on account of the buyback of government securities on Thursday. However, the impact would be minimal as the notified amount for buyback was at Rs 40,000 crore.
Bond market traders who spoke to NDTV Profit said the amount of bonds bought back were sharply lower than the notified amount as they might be unwilling to accept bids at higher prices for the securities.
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