The average liquidity deficit during the week ended Friday, February 15, was at a seven-week high at Rs 86,715 crore, led by fund outflows and a higher credit growth compared to the deposit growth, according to a Care Ratings report.
Bank credit growth has has been higher year-on-year at 14.5% as of 1 February and has surpassed the deposit growth, recorded at 9.6%. “The lower deposit growth amid higher credit growth has been a factor contributing to the liquidity constrains in the banking system”, say experts at Care Ratings.
The yield on the benchmark bond maturing in 2028 fell by 190 basis points (bps) since January 1 to close at 7.58% on Monday, and was 1 bps higher than the previous close of 7.57% on Friday.
Foreign portfolio investors have pulled out close to $500 million from the bond markets since January 1.
Treasurers believe investors are pulling out fearing fiscal slippages following the largesse to farmers proposed by the government in the Interim Budget 2019-20. The Budget also proposed zero tax to individuals having a taxable income up to `5 lakh and also withdrew tax on notional rent on a second self-occupied house.
The banking sector continues to be in deficit for the 19th consecutive week, despite the liquidity infusion by the RBI through open market operations (OMOs) worth `12,500 crore out of the planned `37,500 crore this month.