Liquidity challenge likely to re-emerge in 2012-13, says Standard Chartered

Projecting a challenging year for the Indian banking sector, global financial services major Standard Chartered today said the liquidity challenge is likely to re-emerge in 2012-13, forcing RBI to take action.

"Our projections for FY13 indicate that the liquidity challenge is likely to re-emerge, necessitating RBI action," a research report from Standard Chartered said.

After 125 basis points (bps) of cash reserve ratio (CRR) reductions in the second half of 2011-12, it said "we expect the RBI to rely more heavily on OMOs (open market operations) in FY13".

Even if central bank cuts the CRR by another 50 bps, it may have to buy Rs 1.5 lakh crore worth of government securities this fiscal, Standard Chartered said.

Unlike last year, relatively benign inflation should give the RBI scope to conduct these liquidity-easing measures, it added.

Managing the banking-system liquidity deficit has been a challenge for the central bank recently.

In the last fiscal, the RBI bought Rs 1.29 lakh crore worth of Government Securities via OMOs. It also reduced the CRR by 125 bps to inject Rs 80,000 crore in the system.

The global financial services major expects the government's record market borrowing of Rs 5.7 lakh crore (gross) to "crowd out" private-sector credit in 2012-13.

"The lack of decisive government steps to improve investment sentiment and kick-start the investment cycle will also weigh on credit growth," the Standard Charted said.

Source: EconomicTimes