The system liquidity is likely to be in the range of 1.0-1.2 per cent of Net Demand and Time Liabilities (NDTL)
The battle for money amongst banks, especially for short-term funds, may turn more intense in the final month of the financial year to feed the demand for funds for tax payments and meet year-end targets.
The mobilisation of funds via certificates of deposit has grown threefold to over Rs 60,000 crore in the fortnight ended February 23 from around Rs 20,000 crore in the fortnight of January 26, 2024, according to Reserve Bank of India data.
Soumyajit Niyogi, Director, Core Analytical Group, India Ratings & Research said banks waited till January in the hope of improvement in liquidity. But after getting convinced that liquidity may not improve in any meaningful way, they scaled up fundraising through instruments like CDs in February. This trend may continue for most parts of March as payments for advance tax, GST and year-end demand.
Given the unfolding scenario in March, the RBI is likely to change its approach from fine-tuning to providing substantial liquidity support, Niyogi added.
The fundraising through commercial paper, another short-term instrument, also grew from Rs 34,493 crore in the fortnight of January 15, 2024, to Rs 53,532 crore in the fortnight ended January 31, 2024, and further to Rs 57,900 crore in 15 days ended February 15, 2024, RBI data showed.
The interest rates have also inched up, reflecting the surge in demand for money. The interest rate range for CDs was 7.07-8.02 per cent for the fortnight ended January 26, 2024, which moved to 7.17-8.22 per cent in the fortnight of February 23, 2024.
Gopal Tripathi, Head – Treasury and Capital Markets, Jana Small Finance Bank, said banks will continue to scout opportunities to raise funds via instruments like CDs on a higher scale this month as liquidity is under pressure. The economy is doing well, fuelling credit demand which lenders are cashing on with robust capital adequacy.
Bank of Baroda, in a review of the bond market and liquidity over the weekend, said the pressure on liquidity has remained. The average system liquidity deficit moderated to Rs 1.9 trillion in February 2024 from Rs 2.1 trillion in January 2024. The RBIтАЩs fine-tuning operations with the frequency of Variable Repo Rate (VRR) being higher than Variable Reverse Repo Rate kept liquidity range-bound. The notified amount, itself enumerated that liquidity conditions are still tight.
The system liquidity is likely to be in the range of 1.0-1.2 per cent of Net Demand and Time Liabilities (NDTL). The current gap between incremental credit and deposit is at Rs 3.2 trillion. Thus, medium-term pressure on liquidity cannot be discounted, it added.
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