The banking system liquidity deficit continued for the fifth consecutive week despite the central bank making open market operations (OMO) purchases to the tune of `58,000 crore in the previous six weeks.
The banking system liquidity deficit continued for the fifth consecutive week despite the central bank making open market operations (OMO) purchases to the tune of Rs 58,000 crore in the previous
The average daily net liquidity deficit in the banking system for the week ended November 9 moderated to Rs 68,612 crore, compared with Rs 92,188 crore in the previous week.
The overnight call rate on Tuesday was 6.42% while on Monday it was 6.43%. The call market rate during the week ended November 9 closed at a two-week high of 6.47%, up 43 basis points (bps). On the back of tight liquidity conditions, the average call market rate for the week was reported at 6.44%, eight bps higher than the previous week’s average.
Experts at Care Ratings believe the continued liquidity pressure can be attributed to liquidity conditions in the NBFC segment, festive season demand and fortnightly reporting of the schedule commercial banks to the Reserve Bank India (RBI).
The RBI undertook OMO purchases to the tune of Rs 10,000 crore on November 6, totalling to Rs 22,000 crore in November. Out of Rs 1,08,660-crore OMO purchase undertaken this fiscal year, the preceding three months had witnessed OMO purchase of Rs 78,010 crore, primarily as measures by the central bank to moderate the liquidity deficit in the financial system.
The bank credit growth till October 26 in the current fiscal was at a five-year high of 14.6%. On an incremental basis, bank credit growth was reported at 4.7% in the current fiscal, compared with the 0.6% growth in the same period last year. “The increase in bank credit growth this year has been driven by improvements in credit offtake by services, agriculture and industry”, said experts at Care Ratings.
However, there was moderation in the credit offtake in the retail segment (personal loans), primarily on account of contraction in loans availed of for consumer durable purchases. Nevertheless, the credit growth in the retail segment continues to be positive (5.8%).
Experts at Care Ratings believe there could be an easing in the banking system liquidity in the ongoing week with the moderation in festive demand and the scheduled OMO purchase of `18,000 crore in the remainder of the month.
Despite this, the banking system liquidity is likely to be in deficit. Further, the scheduled government borrowings (central government: Rs 12,000 crore and state governments: `10,125 crore on November 13) and the likelihood of forex sales by the RBI to support the rupee could pressure system liquidity.