With the Reserve Bank of India pumping in Rs 60,000 crore by slashing the cash reserve ratio (CRR) by 150 basis points to 7.5%, with effect from last Saturday, the banking system has witnessed improved liquidity conditions.
Overnight call money rates ended at 9.75-10%, lower than 15.5-16% on Friday when it touched a 19-month-high of 23% during trade.
Banks which were seen borrowing big time through the repo window on Friday, slowed down their need on Monday.
On Monday, banks borrowed Rs 59,575 crore through the repo window as against Rs 92,000 crore on Friday. On Tuesday and Wednesday, last week, too, banks borrowed as high as Rs 63,285 crore and Rs 81,135 crore respectively, indicating a liquidity crunch in the banking system.
On Monday major lenders in the repo market were foreign banks at 66.18%, followed by mutual funds at 17.21%. Among the borrowers, primary dealers bought heavily (37.36%), followed by private sector banks (31.92%).Traders believe a slash in call rates imply improved cash supplies in the banking system.
There is also a growing belief among market players that there maybe a reduction in the statutory liquidity ratio and also a further cut in the CRR, so that the liquidity crunch may further be eased.?We could see a further reduction in the SLR and CRR, so that liquidity pressures may further reduce,? said a trader. Banks are now required to invest at least 25% of their deposits in government bonds. A reduction in the SLR would mean the demand for government bonds to reduce and more funds for loans.However, traders also said if rupee depreciation against the dollar keeps happening, the RBI will have to keep intervening to sell dollars in the forex market, which will drain out liquidity from the system.