The Hindu Business Line : Call rates on the rise, touches 20 pc

Repo facility
Bank borrowing from RBI under the repo facility placed at over Rs 34,000 crore.
RBI received and accepted 47 bids for Rs 24,665 crore in the first four-day repo auction and 20 bids for Rs 9,535 crore in the second auction.

Mumbai , Dec. 29

Cash was again hard to come by with the call rate (the overnight rate at which banks lend to one another), touching 20 per cent on Friday. These levels were last seen about nine years ago, said dealers.

On Friday, call rates opened at 12.5-13 per cent and closed at 18-19 per cent against Thursday's close of 12.25-12.75 per cent. They leaped to a high of 20.5 per cent intra-day. As against this, the RBI repo rate (the cost at which RBI lends money to banks) is fixed at 7.25 per cent.

"There are very few lenders in the call market ahead of the New Year. Worried over sticking to the higher CRR, most banks kept off lending. This has pushed up call rates to the current high levels," said a bond dealer.

Cash shortage has driven banks to borrow from RBI under the repo facility with the central bank lending today placed at over Rs 34,000 crore. A couple of months ago, these were the amounts cash surplus banks placed with the RBI under reverse repo. The RBI received and accepted 47 bids for Rs 24,665 crore in the first four-day repo auction and 20 bids for Rs 9,535 crore in the second auction.

There was only one reverse repo auction in the second liquidity adjustment facility (LAF) and there were three bids for Rs 2,515 crore.

By raising the repo rate to 7.25 per cent in the mid-term review of the monetary policy, the RBI had not tinkered with rates; but the hike in CRR to 5.50 per cent (in two tranches) has started telling.

"The RBI is worried about the quality of credit and these are steps to slow down the credit growth," said a senior bank official; and a dealer added:

"The call market is presently lender-driven. I won't be surprised if call rates open at 25 per cent next week."

Dealers are hopeful of liquidity improving next week, as the Government spending is expected to begin and the interest earnings from the special deposit schemes of around Rs 10,000 crore will seep into the system.