Bank borrowings shot up to their highest level in eight months in the fortnight ended June 16 as outflows on account of quarterly advance tax payments sent lenders flocking to the money market for funds.
In the week ended June 16, bank borrowings were at Rs 5.05 lakh crore, the highest sum since the fortnight ended October 21, Reserve Bank of India data showed. The figures for the week ended June 16 marked the first time since early April that bank borrowings topped the Rs 5 lakh crore mark.
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Figures listed under the ‘borrowings’ section for scheduled commercial banks in the fortnightly RBI data largely represent short-term funding routes, such as interbank repo operations and the use of tri-party repos, analysts said.
“It was basically because of temporary shortages out of advance tax payments and banks had to borrow from money markets or liquidate positions. It is the money market borrowing that is largely getting reflected in the RBI data,” Soumyajit Niyogi, director, India Ratings & Research said.
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The drain of funds from the banking system due to the tax outflows showed up in the portion of excess funds parked by banks with the RBI. As on June 1, banks had deployed surplus funds worth Rs 2.4 lakh crore with the RBI, with surplus liquidity having swollen because of deposits of Rs 2000 notes.
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Following the tax payments, the quantum of extra funds that banks were parking with the RBI had shrunk considerably, with lenders deploying Rs 18,657.21 crore as on June 19.
Towards the end of the month, the weighted average call rate, which is the operating target of the RBI’s monetary policy, hardened considerably due to the tighter liquidity conditions. In turn, pricing benchmarks such as the Mumbai Interbank Outright Rate (MIBOR), also shot up, pushing up bank borrowing costs.
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However, in July so far, liquidity in the banking system is back to a large surplus due to heavy government expenditure, market participants said.
Consequently, money market rates have eased significantly, with the RBI consistently mopping up excess funds through variable rate reverse repo operations. As on July 6, the RBI absorbed surplus funds worth `2.4 lakh crore from banks.
