Banking system liquidity to remain in surplus position: CARE Ratings
Dec 28, 2020
Mumbai (Maharashtra) [India], December 28 : The outstanding liquidity in banking system amounted to Rs 5.09 lakh crore as on December 24, Rs 50,386 crore higher than that in the previous week (Rs 4.58 lakh crore as on December 18), CARE Ratings said on Monday.
The sustained liquidity surplus in banking system can largely be attributed to deposit growth persistently surpassing bank credit growth. The incremental bank deposit growth was at 7.5 per cent higher than the incremental bank credit growth by 1.3 per cent as on December 4.
Besides, improved credit flows to MSMEs under the Emergency Credit Line Guarantee Scheme (ECLGS scheme) might have also capped liquidity surplus in the banking system, said CARE. Banks have sanctioned Rs 2.06 lakh crore to the 81 lakh MSMEs, of which Rs 1.59 lakh crore were disbursed till December 4.
The RBI's durable liquidity infusion measures via open market operation (OMO) purchases of central government securities have also supported liquidity in the banking system.
So far this fiscal, the RBI has undertaken total OMO purchases of Rs 3.37 lakh crore while OMO sales totalled Rs 1.1 lakh crore (including simultaneous purchase and sale of OMOs).
In addition, the RBI also conducted OMO purchase of state developments loans worth Rs 10,000 crore that further supported the liquidity in the banking system.
CARE said lower central government borrowings amounting to Rs 22,975 crore against the notified Rs 28,000 crore could have further supported the liquidity surplus.
However, the upside to liquidity could have been capped on account of certain statutory tax payments and higher state government borrowings Rs 12,007 crore against the notified Rs 11,407 crore in the weekly auctions.
The daily net absorption by the RBI from the banking system -- that is daily repo and reverse repo operations (including the fresh term repo and reverse repo auction and excluding the outstanding term repo and reverse repo operations) -- for the week ending December 24 was at Rs 6.21 lakh crore, Rs 50,386 crore higher than a week ago (Rs 5.7 lakh crore as on December 18).
During the week, the weighted average call money rate increased by 13 basis points to 3.25 per cent for the week ending December 24 (3.12 per cent for the week ended December 18). It continued to remain below the RBI's repo rate of 4 per cent throughout the week.
The average call market borrowings amounted to Rs 10,230 crore during the week, 16 per cent higher than that of the previous week (Rs 8,786 crore during December 14 to 18).
As the bank deposit growth continues to surpass the bank credit off-take, the banking system liquidity is expected to remain in a surplus position this week as well.
However, year and quarter-end fund requirements by the banks and scheduled government borrowings (Central: Rs 22,000 crore and state: Rs 18,604 crore) could weigh on the overall liquidity surplus.
