RBI would not need surplus cash from banks however that may go to fellow friends

“It’s fascinating that banks having surplus funds discover lending alternatives within the interbank name market somewhat than passively parking funds within the SDF (standing deposit facility) at comparatively much less engaging charges,” Shaktikanta Das mentioned throughout his financial coverage tackle.

Banks have been favoring the position of funds throughout the in a single day SDF as a substitute of constructing them obtainable within the major 14-day variable price reverse repo (VRRR) operations, Das mentioned. It’s important for banks to fastidiously consider their actual liquidity wants all through the reserve upkeep cycle and submit applicable bids within the auctions for the primary 14-day VRRR operations, he added.

Larger quantity of name cash transactions would assist deepen the interbank cash market and in addition decrease the necessity for some lenders to depend on the marginal standing facility, Das mentioned.

India’s banking system has been going through a liquidity deficit, with a lower within the sum of money obtainable within the interbank market since mid-September, primarily as a result of tax funds. This scarcity of funds has led to a rise in cash market charges, which was additional exacerbated by the central financial institution’s implementation of an incremental money reserve ratio in August.

The RBI lends funds to banks on the repo price of 6.50%. Banks may also borrow from the MSF facility at 6.75% and park cash with the central financial institution utilizing the SDF at 6.25% price.The liquidity distribution within the banking system is skewed, the RBI chief mentioned in his tackle.Banks have been parking round 500 billion rupees to at least one trillion rupees with the RBI underneath SDF.

On the identical time, borrowing by way of the marginal standing facility hit a report excessive of almost two trillion rupees in September.

The RBI might have to think about open market gross sales of presidency bonds going ahead because it seeks to handle liquidity, Governor Das mentioned.

“Whereas remaining nimble, we might have to think about OMO (open market operation)-sales to handle liquidity, in line with the stance of financial coverage.”

The timing and quantum of bond gross sales would rely upon evolving liquidity situations, he added.

The RBI has web offered bonds price 71 billion rupees in 4 weeks to Sept. 22 by way of operations on the bond buying and selling platform.

(with inputs from Reuters)