:::::SRI S.B. RODE, OUR BELOVED PRESIDENT, AICBOF AND OFFICER DIRECTOR ON THE BOARD OF CENTRAL BANK OF INDIA HAS BEEN COOPTED AS GENERAL SECRETARY, AICBOF IN E.C. MTG. HELD AT MUMBAI ON 24.02.2014:::::MR. S.C. GUPTA, GEN. SECRETARY OF OUR AHMEDABAD UNIT HAS BEEN COOPTED AS PRESIDENT, AICBOF::::::WE CONGRATULATE THEM AND WISH THAT THE OFFICERS' MOVEMENT IN CENTRAL BANK OF INDIA WILL BE TAKEN TO NEW HEIGHTS:::::LONG LIVE CBOA:::::LONG LIVE AICBOF::::::LONG LIVE AIBOC:::::

LIQUIDITY TIGHT AS BANKS BORROW MORE FROM RBI

Liquidity remained tight for the second consecutive day as banks borrowed slightly over Rs 13,000 crore on Tuesday from the Reserve Bank of India, more than double the amount borrowed on Monday.

Dealers said tight liquidity has reduced the scope of arbitrage between money markets and mutual funds for banks, which was rampant earlier.

Banks borrowed Rs 5,840 crore through the repo window in the morning and Rs 7,325 crore in the second half on Tuesday. The Rs 68,000 crore payments made by telecom companies to government to acquire bandwidth for third generation (3G) mobile telecom licenses results dried liquidity in the system.

For almost one and half years, banks had been flushed with cash, and therefore, parked surplus money with RBI in its reverse repo window. During the easy liquidity conditions, banks borrowed money from collateralised borrowing or lending operations (CBLO) at 3.50% and parked it with the mutual funds in their liquid scheme which gave a return of 4%.

While mutual funds were the key lenders in the CBLO facility, banks were mainly borrowers. This equation changed over the last couple of days as liquidity tightened. Money market watchers say mutual funds have almost stopped lending thought the CBLO facility while banks with surplus cash are no longer parking money with mutual funds. 
In fact, several banks have withdrawn money from mutual funds and are lending in the call money market where the returns are around 5.25%. Some banks are even investing surplus money in the commercial papers and certificate of deposits where interest rates have hardened. On Tuesday, State Bank of Mysore raised one year CD at 6.65%, higher than 5.50% CD raised by some banks few days ago, while L&T Finance placed one-year commercial paper at 6.70%. Banks have also pointed out that interest rates on bulk deposits have hardened. Some private banks have raised money at 7% for 30 days against 5% offered for one year few weeks ago.

Despite the tightness, treasury heads of large commercial banks feel that liquidity conditions will ease as government starts spending money it received from the telecom companies. In fact, on Tuesday, some banks had surplus money since RBI received Rs 7,590 crore in the reserve repo window where it pays banks 3.75%.

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