Banking system liquidity turns surplus on higher deposit growth govt spending
The banking system liquidity has become surplus in the last few days on higher deposit accretion and increase in the government spending. The Reserve Bank of India (RBI) absorbed on an average Rs 70,933.8 crore of liquidity from the system on a daily basis between February 28 and March 7. The net liquidity absorption by RBI stood at Rs 1.14 lakh crore on March 5 and Rs 1.05 lakh crore on March 4. After remaining in deficit mode for 17 days, RBI absorbed Rs 18,256.53 crore of liquidity on February 28 on a net basis. Between February 8 and February 27, the average daily infusion by the RBI into the system was Rs 27,107.82 crore. While the net absorption number shows the surplus liquidity which is being sucked out of the system by RBI, net injection reflects the deficit. Liquidity in the banking system refers to the readily available cash that banks need to meet short-term business and financial needs. Essentially, it (liquidity surplus) is because of the deposits which have started increasing due to rise in interest rates. At the same time, there is some kind of slowdown in credit demand, Bank of Baroda Chief Economist Madan Sabnavis said. Many banks have increased their deposit rates after the RBI raised the repo rate by 250 basis point (bps) to 6.50 per cent since May 2022. The weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits of scheduled commercial banks increased by 12 basis points from 5.78 per cent in December 2022 to 5.9 per cent in January 2023, the latest RBI data showed. In the fortnight ended February 10, bank credit grew by 16.05 per cent and deposits by 10.2 per cent. The credit and deposit growth in December 2022 was over 17 per cent and 9.2 per cent respectively. Another reason for liquidity surplus is higher government spending which is also increasing the deposit base of the banking system. However, liquidity in the banking system will soon turn deficit on account of advance tax outflows. The last date for advance tax payment is March 15. Post that we will see some squeeze in the system liquidity, said a public sector banker. Liquidity will also get tighten towards the month end as banks will try to meet their short-term lending target. The redemption of long term repo operations (LTROs) and targeted long term-repo repo operations (TLTROs) in the coming weeks will also weigh on liquidity, bankers said. The treasury bill (T-bill) auction result announced on Wednesday showed that the cut-off yield on 364-day T-bill went above the 10-year government securities (g-sec) paper at 7.48 per cent. The yield on the 10-year paper touched a high of 7.46 per cent. In case of the 91 Days bill, the cut-off yield was 6.97 per cent and 182 days 7.38 per cent. Short term rates going up are also a sign of liquidity getting tighter, Bank of Baroda in a report said, adding that this can be linked to the expected redemption of LTRO/TLTROs as well as advance tax payments in the coming week.
Thursday, March 9, 2023 at 12:11 am