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Liquidity crunch at new high on advance tax outflows

By Religare

Liquidity crunch at new high on advance tax outflows
Indian banks' borrowing from the Reserve Bank of India's (RBI) daily Liquidity Adjustment Facility (LAF), on Thursday, stood at Rs 1.7 lakh crore—the highest in this fiscal—despite the central bank buying government bonds through OMOs.

Experts said that liquidity has worsened due to advance tax outflow which drained Rs 50,000-60,000 crore from the system.

In the past month, the borrowing has stayed above Rs 1 lakh crore, far above RBI's comfort zone of +/- 1 per cent of banks' net demand and time liabilities (NDTL).

Also, the delay in government spending has led the liquidity to worsen over the period. Experts said that daily average borrowings of banks will continue to stay above Rs 1 lakh crore unless RBI announces rate cut.

RBI, in its December policy review, didn't change the repo rate as well as CRR but offered the hints of reversal in trend starting January 2013.

Read more about: indian banks
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