Banks are investing their surplus funds in government securities and debt mutual funds as credit demand from companies has dried up in the face of the economic slowdown.
Data available with the Reserve Bank of India show that barring on the first day no bank has borrowed from the apex bank through its repo auction in this month. All bids were in the reverse repo counter.
Under the repo auction, the RBI lends money to banks. Under the reverse repo auction, the RBI borrows money for the short term from banks against government securities.
The reverse repo auctions of the RBI had attracted many banks since the first week of November.
The average daily volume of transaction rose sharply from the beginning of this month.
However, after the RBI cut the reverse repo rate to 5 per cent from 6 per cent on Saturday, the auction volume fell steeply to Rs 1,070 crore on Monday from a daily average of more than Rs 25,000 crore in the first five days of the month.
In the face of a tight liquidity condition in the economy in September that led to a redemption crisis in the mutual fund industry, the RBI reduced the cash reserve ratio (CRR) steeply from 9 per cent to 5.5 per cent between October 6 and November 2.
The CRR is the percentage of deposits that banks compulsorily keep with the apex bank.
The CRR cut was followed by a reduction in the statutory liquidity ratio (the percentage of deposits that banks have to invest in government securities) to 24 per cent from 25 per cent and repo and reverse repo rates to 5 per cent and 6.5 per cent, respectively.
Liquidity in the banking system was so tight that there was very little reverse repo auction throughout October. All banks turned borrowers in the repo market.
After the cash reserve ratio was cut on October 6, the daily volume of transactions fell from Rs 70,295 crore on October 1 to Rs 550 crore on November 3.
Banks became lenders in the reverse repo market for the most part of last month, when the average daily volume in the reverse repo market far exceeded the volume in the repo market.
In the current month, there was repo trading only on one day, and the daily average volume shot up in excess of Rs 25,000 crore from Rs 4,000 crore in November.
According to a senior official in a private sector bank, “Banks would rather prefer to park their excess liquidity in short-term investments rather than reduce lending rates when the demand for credit itself is going down.”
Source: http://www.telegraphindia.com/1081210/jsp/business/story_10231853.jsp
Data available with the Reserve Bank of India show that barring on the first day no bank has borrowed from the apex bank through its repo auction in this month. All bids were in the reverse repo counter.
Under the repo auction, the RBI lends money to banks. Under the reverse repo auction, the RBI borrows money for the short term from banks against government securities.
The reverse repo auctions of the RBI had attracted many banks since the first week of November.
The average daily volume of transaction rose sharply from the beginning of this month.
However, after the RBI cut the reverse repo rate to 5 per cent from 6 per cent on Saturday, the auction volume fell steeply to Rs 1,070 crore on Monday from a daily average of more than Rs 25,000 crore in the first five days of the month.
In the face of a tight liquidity condition in the economy in September that led to a redemption crisis in the mutual fund industry, the RBI reduced the cash reserve ratio (CRR) steeply from 9 per cent to 5.5 per cent between October 6 and November 2.
The CRR is the percentage of deposits that banks compulsorily keep with the apex bank.
The CRR cut was followed by a reduction in the statutory liquidity ratio (the percentage of deposits that banks have to invest in government securities) to 24 per cent from 25 per cent and repo and reverse repo rates to 5 per cent and 6.5 per cent, respectively.
Liquidity in the banking system was so tight that there was very little reverse repo auction throughout October. All banks turned borrowers in the repo market.
After the cash reserve ratio was cut on October 6, the daily volume of transactions fell from Rs 70,295 crore on October 1 to Rs 550 crore on November 3.
Banks became lenders in the reverse repo market for the most part of last month, when the average daily volume in the reverse repo market far exceeded the volume in the repo market.
In the current month, there was repo trading only on one day, and the daily average volume shot up in excess of Rs 25,000 crore from Rs 4,000 crore in November.
According to a senior official in a private sector bank, “Banks would rather prefer to park their excess liquidity in short-term investments rather than reduce lending rates when the demand for credit itself is going down.”
Source: http://www.telegraphindia.com/1081210/jsp/business/story_10231853.jsp
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