Liquidity surplus banks park Rs 31,000 cr with RBI

Mumbai: The beginning of the new financial year 2011-12 has witnessed some radical improvements in liquidity scenario in the system. For the first time, almost over a year the banks have parked surplus liquidity to the tune of R31,000 crore in the reverse repo window of Reserve Bank of India.

RBI's reverse repo window pays 5.75% to the banks. The rates for certificate of deposits (CDs) also softened on Tuesday. One-year CD fell by almost 30 basis points from 9.70% to 9.40% on Tuesday. Till March end, banks had been borrowing consistently from the RBI's repo window, which has varied from over R50,000 to R1,000 crore.

Banks have raised resources through high cost deposits and certificate deposits in the past.

MD Mallaya, CMD of Bank of Baroda, said that the exact liquidity situation is likely to be good in the future. “By and large, we have entered the phase of slack season when credit demand will be less and government spending has already happened in March. Interest rates are to remain stable for now. Accretion of deposit shouldn't be a challenge in future,” he said.

On whether RBI will take measures to suck out liquidity, he said, “It is too early for RBI to take a view on the issue. It will depend on overall macroeconomic conditions.”

M Narendra, CMD of Indian Overseas Bank, said the sudden surplus may be happening as banks might have done it in a bid to go for pending deployment of credit. Few banks may go for deposit rate cuts too, he said. “But, such surplus may not continue further. Still, it is not indicator enough for RBI to take measures to suck out the surplus liquidity,” he said.

SC Kalia, executive director of Union Bank of India, said it looked like liquidity crunch should not be any issue now. During the year, a lot of deployment of funds took place on short-term basis. The surplus of liquidity was also due to the redemption pressure on MFs. “When those funds are coming, there will certainly be liquidity surplus with banks. Liquidity may be at comfort level, but not that much surplus so that it would lead to RBI taking measures to suck out liquidity,” he added.

D Sarkar, ED of Allahabad Bank, said that liquidity had improved now as lots of government funds had been released recently. “At the moment we don't feel there is any need to go for cut in deposit rates,” he said.

Net liquidity injection through LAF declined from an average of R93,000 crore in January to R79,000 crore in February 2011, and further to R68,000 crore in March mainly due to increase in government spending and consequent decline in government cash balances with RBI.

D Subbaro, governor of RBI, had said going forward, the overall liquidity situation is expected to move close to the comfort level of the RBI.

Source: Financial Express