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Tuesday, April 1, 2014

No rate spike during fiscal end as RBI steps keep liquidity easy

Short-term rates bucked the trend of remaining elevated towards the end of fiscal year, as the measures taken by the central bank helped avoid the liquidity crisis typically seen in March. The banking system usually runs short of money close to the end of the fiscal year as companies withdraw funds to pay advance tax and the government reduces spending.

This year, the Reserve Bank of India took proactive steps to ensure liquidity, said NS Venkatesh, head of treasury at IDBI Bank. "Call rates went up to 13% for a brief spell on Friday but it did not sustain unlike last year-end," he said, citing the RBI's steps to provide cash in the system through term repos, bond buybacks and the marginal standing facility (MSF).

On Friday, March 28 - virtually the last trading day of the financial year - the weighted average rate in the inter-bank call money market, where banks and primary dealers lend and borrow, stood at 7.62%, compared with 8.50% a year earlier, according to the Clearing Corporation of India website. In the collateralised borrowing and lending obligation (CBLO) market, where banks, mutual funds and primary dealers with excess government securities participate, the weighted average rate was 11.72%, against 12% last year.

Banks also extensively utilised the MSF window that allows them to borrow from the RBI at 9% when they need more funds than what is available at 8% through the regular overnight repurchase, or repo, facility. This facility has seen Rs 5,000-6,000 crore of average daily borrowing in the past few weeks. The RBI held its last year-end MSF operation on Saturday between 7 pm and 7.30 pm.

"Banks were not in a hurry to borrow as MSF was readily available," said Devendra Dash, a senior bond dealer at DCB Bank. Only primary dealers and banks with fewer securities under the statutory liquidity ratio (SLR) borrowed from the call or CBLO markets at highest rates, he said. Under SLR rules, banks need to compulsorily invest 23% of their total deposits in government securities.

Currently, the overall SLR of India's banking system is 29.09% on an average, or 6.09% in excess. They can pledge these additional holdings to borrow from the MSF window. In fact, lenders can pledge an additional 2%, going beyond the mandated SLR requirement of 23%. Under the regular repo facility, the central bank had capped banks' borrowing limit at 0.50% of their total deposits or net time and demand liabilities.

This works to around Rs 36,000 crore daily. The central bank eased liquidity conditions by conducting various term repos for 5, 14, 21 and 28 days in the past one-two months. This process has infused about Rs 1.1 lakh crore.

It also pumped in Rs 20,000 crore into the system in March alone through government bond buybacks. "The RBI has managed liquidity quite well this year," said Yadnesh Chavan, fund manager, fixed income, at Mirae Asset Global Investments. "Last year, it was not the case. Short-term rates had shot up persistently."

Source: Economic Times
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IBA panel suggests steps to improve ATM security

A committee set up by the Indian Banks' Association (IBA) has recommended several steps to improve security at ATMs, which, if the central bank accepts them, should make ATM transactions safer but may increase the cost for customers.

One of the key suggestions is to set benchmarks for companies that carry cash from banks for replenishing ATMs. The committee has recommended a minimum net worth of Rs 5-10 crore for such cash-management companies. The IBA has yet to finalise the report, but will submit it to the RBI in 7-10 days, Mohan Tanksale, chief executive at the association, told ET.

"The aim is to bring more uniformity to the sector while setting certain benchmarks, which will ensure entry of only standard players in the industry," he said without disclosing details of the report. Setting stringent rules is likely to weed out non-serious and inefficient operators from the segment, which however could reduce competition and increase the fees that cash-management companies charge. The committee was set up after a woman was brutally attacked inside a secluded Bangalore ATM in November.

That attack led the Karnataka government to order banks to provide security guards at all ATMs in the state. There had also been other incidents of crime inside ATMs and attacks on vehicles of cash-management companies. Members from the Cash Logistics Association, Managed Service Providers and IBA were part of the committee.

The committee has recommended a grading system for cash-management companies. They will be rated based on their net worth, said two people with the direct knowledge of the matter. It has prepared the report primarily under five sub-heads: guidelines for infrastructure and operating practices for cash logistics, financial worthiness of cash logistics operators, provision of arms licences, accreditation and compliance system of cash logistic operators and guidelines for risk mitigation and safety norms.

Under its recommendations, security guards at ATMs may be allowed to hold gun licences. Loading cash into ATMs may also be barred after 8 pm. "Clarity on operating standards shall ensure mitigation of risks significantly, pushing operators to work towards safer and more efficient operations for banking sector," said Rituraj Sinha, co-chair of the Ficci Private Security Sector Committee.

Source: Economic Times
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