Banks pull out Rs 59.3k cr from RBI repo window.

On Thursday, banks have borrowed slightly less, at Rs 59,300 crore, from the Reserve Bank of India’s special repo window. On Wednesday and Tuesday, these banks had raised Rs 66,170 crore and Rs 68,055 crore, respectively.

The one-day call rate ended at 5.15-5.30% as against 5.20-5.35% on Wednesday. In 63 trades, around Rs 5,440 crore were transacted in the call money market.

Says S Srinivasa Raghavan, vice-president and head of treasury at IDBI Gilts, “Liquidity is expected to remain low in June on account of advance tax outflows and 3G payments.” He added that once the government spending starts, the money will flow back into the system.

M Narendra, executive director of Bank of India, explained the money will come back with a lag effect. “With credit growth still remaining on the lower side, banks are not in dire need for funds. Having said that, if the liquidity situation gets worse, we could see some banks increasing their rates on deposits to raise their required funds.”

The tightness in the liquidity condition is due to a large outgo on the account of advance tax payment and payment towards 3G licences and broadband wireless access.

In a bid to ensure enough liquidity, RBI had allowed banks to maintain a lower statutory liquidity ratio, by 0.50%, for a short period till July 2, 2010. The RBI now conducts two liquidity adjustment facilities operations every day, allowing banks access funds from it.

The central bank has also reduced the size of the treasury bill auction to Rs 15,000 crore from Rs 22,000 crore. Nevertheless, dealers believe that money could be somewhat tight because telecos have paid the government Rs 67,000 crore for 3G licenses. At the same time, advance tax outflows are expected to suck out funds close to Rs 30,000-40,000 crore from the system by June 15, 2010.

Source :- financialexpress.com/news