With rates expected to rise again, banks have increased their borrowings from the Reserve Bank of India?s (RBI) repo window on Tuesday. The banks raised Rs 1.08 lakh crore from RBI.
After banks? daily borrowings from the RBI dropped to Rs 70,000-80,000 crore in the past few days, this was the second consecutive day in the week that the daily borrowings has once again exceeded Rs 1 lakh crore mark. Banks had borrowed Rs 1.04 lakh crore on Monday.
Currently the repo rate at which banks borrow from RBI is pegged at 6.25% while reverse repo which RBI pays to banks for the surplus cash parked with the central bank is priced at 5.25%.
Said Manish Sarraf, head ? treasury, Dhanlaxmi Bank, ?Banks may be front-loading their borrowings from RBI in anticipation of policy rate hikes to be announced by RBI in its monetary policy review on January 25. A rate hike will lead to increase in the cost of borrowings by banks.?
Meanwhile, resources raised through commercial papers (CPs) by companies were priced at a higher rate while certificate of deposits(CDs) by banks have marginally fallen on Tuesday.
The three month CP was priced at 9.64% as against 9.60% recorded on Monday. The costs for six month and one year CPs were at 9.85% and 10.19% compared with 9.80% and 10.12 % respectively on Monday. The three month CD on Tuesday was priced at 9.18% as against 9.23% on Monday. Similarly the cost of six month CD fell at 9.60% from 9.63% on Monday while one year CD remained flat at 9.76 % on Tuesday.
Said Roy Paul, DGM, treasury, Federal Bank, ?As rates have gone up across the board, banks may not be eager to redeem their CDs. To make good that gap, they may be raising funds through LAF borrowings. In CPs, some corporates may be raising funds ahead of the March quarter ending, to maintain their balance sheet size.?
Paul expects the liquidity situation to ease by March as the government of India is expected to spend aggressively during that time to exhaust its budgetary allocation. The central bank is set to review monetary policy on January 25. The Reserve Bank raised the repurchase auction rate, at which it lends to banks, by 150 basis points last year to 6.25%.