Bank borrowing from Reserve Bank of India has fallen to a seven month low, on government spending, as liquidity shows signs of easing.
Liquidity in the system seems to be coming back to a comfortable level of plus/minus 1% of net demand and time liabilities( NDTL), as bank borrowing from the Reserve Bank of India's liquidity adjustment facility window came down to Rs.41,300 crore today, lowest since November 2011.
"One probable reason, that liquidity easing can be attributed to is government spending having come into the system," said a senior banker from FirstRand Bank.
Liquidity in the system has been under the strain since January, mainly due to lower deposit mobilization and shortage of rupee funds due to RBI's intervention in the currency market, to curb the rupee fall. The rupee has fallen by almost 15% since February this year and RBI has had to intervene at regular interval to provide support to the rupee and supply dollars in the market.
The RBI enters into sell/buy swaps, where in RBI shorts or sells dollars in the spot market and buys them in the forwards market. While it is selling dollars, it simultaneously buys Indian rupees from the market, which leads to tightness in rupee liquidity.
Banks borrowed as much as Rs.1.95 lakh crore on March 23, highest amount borrowed from the RBI in this year. Banks borrow from the RBI at repo rate, which is currently at 8%, by pledging government securities.
The call rates closed at 7.90% on Friday, reflecting the easing liquidity.
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