Mumbai, July 16: The banking system will be flushed with liquidity to the tune of Rs 5,000 crore this fortnight. This is likely to see the Reserve Bank of India enter the market with another Government of India auction besides the 11.55 per cent three-year paper that will be put "on tap" by the central bank on Friday, dealers in the money market said.While Rs 6,140 crore is expected to be the gross inflow into the banking system this fortnight, outflow amounts to Rs 875 crore only. "There is a net inflow of Rs 5,100 crore which is enough to see the tap stock through apart from another security auction," an analyst in a leading domestic investment banking firm said.
The RBI will easily mop up Rs 2,000 crore through the three-year "on tap" sale, dealers said. This is primarily because of an inflow of about Rs 1,000 crore on account of the redemption of the 364-day treasury bills on July 18.
"There is liquidity in the system and the yield that is being offered is a good one. The RBI should not have aproblem in mopping up Rs 2,000 crore," said MR Madhavan, debt analyst at ICICI Securities. The RBI mopped up Rs 2,050 crore through the 5 per cent fixed-rate repo on Thursday.
Another Rs 1,000 crore will be redeemed on July 31 on account of maturity of another 364-day treasury bills, dealers said. This redemption will be coupled with the maturity of the 13.62 per cent central government security which will bring in about Rs 2,000 crore. "Cumulatively, these redemptions will bring in Rs 3,000 crore and the RBI is likely to mop up this amount also," Madhavan said.
According to dealers, there will be plenty of liquidity in the immediate future. The $2-billion Resurgent India Bonds (RIB), which are slated for an August 5 launch, will also contribute to the easing of liquidity, dealers said. "Even if the RBI decides to release half the amount in rupees, it amounts to over Rs 4,000 crore. This is equivalent to a 100 basis points cut in banks' cash reserve ratio (CRR)," a dealer in a foreign bank said.
Theliquidity in the last fortnight of July and the first fortnight of August will prompt the RBI to borrow as much as it can in the next one month. "Two issues of Rs 4,000 crore each in the first fortnight of August can easily sail through," an analyst in another brokerage said. This will see nearly 70 per cent of the government borrowing through. The gross budgeted borrowing has been pegged at Rs 79,000 crore for fiscal year 1998-99 while the net borrowing programme is at Rs 48,000 crore.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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