Mumbai: The Reserve Bank of India’s (RBI) auctions Friday to infuse funds into the banking system saw less enthusiastic participation on improving liquidity following a raft of earlier measures, bank treasury executives said.
Although the banking sector’s liquidity remains in a deficit mode, there has been improvement. In March so far, daily average liquidity deficit has narrowed to around ₹80,000 crore, compared with ₹1.66 lakh crore in February, and ₹2.03 lakh crore in January.
At the three-day variable rate repo auction, the central bank received bids worth ₹3,970 crore against the notified amount of ₹25,000 crore. Similarly, for the 14-day VRR auction, only 17% of the ₹50,000 crore notified amount was allotted as the RBI got bids worth ₹8,375 crore.
Cut-off for the 14-day VRR was at 6.26%.
VRC Reddy, head of treasury, Karur Vysya Bank, said the Triparty Repo Dealing System (TREPS) and the Clearcorp Repo Order Matching System (CROMS), which facilitate secured overnight lending and borrowing, are witnessing high trading volumes at rates ranging from 6% to 6.10%, and occasionally even below 6%.
This makes daily VRR (Variable Rate Repo) auctions less attractive for banks, as the cutoff rate in these auctions tends to be higher than the repo rate, typically above 6.25%.
TREPS is an anonymous order matching system facilitating borrowing and lending of funds against government securities. Usually, mutual funds are the lenders in this market. Similarly, CROMS facilitates dealing in market repos for government securities.
“On the liquidity front, the frictional deficit is expected to persist at least until the month-end, despite recent RBI measures. This is primarily due to advance tax and GST outflows,” Reddy said. “However, the market remains optimistic, anticipating that the RBI will increase the VRR auction amount around the advance tax outflows, in addition to the ₹1 lakh crore liquidity infusion through OMOs (Open Market Operations) in the next fortnight.”
