The upside down conditions in the stock markets coming on top of the season of big public issues is forcing many banks to brace up for new liquidity management challenges.

Just sample these statistics. The call money rates climbed up to 7.45% on Monday. The rupee has dipped against the dollar by 11 basis points at 39.38.

Bankers operating the treasury management of their banks say the mega public issues slated for 2008 have added one more spot for temporary mismatch in their liquidity. Till now most banks factored in only four annual episodes of dip in liquidity, around the time when corporate India paid advance tax. The sum was considerable at around Rs 35-40,000 crore at the end of every quarter.

But the issues like the Rs 11,700 crore Reliance Power initial public offering and the big ones in the pipeline this year from SBI (Rs 16,736.31 crore rights issue), BSNL (the country’s largest IPO of Rs 40000 crore), Emaar (Rs 7,000 crore IPO) and UTI Asset Management (Rs 2,000 crore IPO), bankers noted that the quick rush of money into the system was a source of temporary volatility in maintaining currency reserves. But they said despite the record fall in markets on Monday, that pressure would not be accentuated.

Why does this happen. For every rupee of bank deposit, the banks lend out almost 60 paise. They estimate that the normal demand by depositors would not be more than that. But as in the present rush for public issues, much more than the normal demand would have come on the banks. On the flip side are the banks where the cheques are encashed, but few Indian banks take on that role.

So banks borrow. With high call rates, they borrow abroad too. A treasury manager in a leading public sector bank said for the past two weeks he has been trying to access foreign funds, but the cost has been high.

This year around 175 companies will raise about Rs 75,000 crore through public issues. This is one and a half times the size of India?s GDP. Arun Kaul, general manager of treasury finance at Punjab National Bank said, there would be polarisation of liquidity during a large public issue, since money moves from one bank to the other. But “mega IPOs will not lead to liquidity crunch as the money remains in the banking system itself. I expect massive overseas capital flow into such IPOs, besides the participation of more domestic retail investors. All this will lead to increased liquidity.”