Banks ask RBI to leave surplus cash in market for more liquidity
Due to the cash crunch prevailing in the market, the banks are exacting the Reserve Bank of India to leave surplus government cash in the hands of the bank, so that they can prevent the temporary cram in the market. The momentary fall in the prices above the policy rates is one of the reasons for the cash rush we are facing, they said. During a meeting on Thursday headed by Raghuram Rajan, the banks also demanded the RBI to bring down the CRR ( the cash reserve ratio) by a percentage point so that Rs.90,000 crore would be released into the banking sector. However, central bank has not given any signal as to what its action could be, given that monetary policy analysis is nearing in April. RBI has somewhere around Rs.1. 9 lakh crore of government’s money which is unspent. The markets in India, that have been undergoing a severe cash crunch could be benefited by the money. This issue has surged the markets and the long term yields downwards. However, the banks are hoping that the RBI would be announcing rate cuts after the government introduced the fiscal deficit reduction map recently. The suggestion to ease the liquidity crunch in the banks has come at a time when the banks have over borrowed almost Rs.2.80 lakh crore from the RBI. This has resulted the call money rate on Thursday to reach 7.6%, that is 85 basis point over the 6.75% repo rate. The meeting was called by RBI to gauge the view of the bankers on the liquidity crunch, before it takes a proper stance to finalise the monetary policy. The bonds purchased by the government and RBI recorded Rs.80,000 crore in one quarter. But this has not helped the money market in any way. When the yields saw an increase in the last few months than what was specified in the monetary policy, many of them blamed RBI for lack of support. Banks have also complained of money stuck in public utilities. For instance Rs.28,400 crore of UDAY (Ujwal Discom Assurance Yojna) was sold by Rajasthan, which was a bailout scheme for the banks. They have in turn lent the money to state power utilities that are now in no position to repay the money back. The banks are caught in a quagmire hoping that RBI takes serious action on the state of affairs.
March 19, 2016 | 04:10pm IST