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T-bill yield drops below repo rate for first time in over two years

A Balasubramanian, managing director and chief executive officer at Aditya Birla Sun Life AMC, said though banks are sitting on cash, they are opting to play it safe and invest in government securities rather than the industry.

By: ENS Economic Bureau | Mumbai |
Updated: November 29, 2019 3:37:04 am
The system is awash in liquidity with the surplus averaging close to Rs 2 lakh crore for several months now, dipping only slightly during the festive month of October.

In an indication of how risk-averse banks are, the yield on the 364-day T-bill auctioned on Wednesday came in at 5.1389 per cent , below that of the repo rate of 5.15 per cent. Bloomberg data show this last happened in April 2017 or more than over two and a half years ago.

A Balasubramanian, managing director and chief executive officer at Aditya Birla Sun Life AMC, said though banks are sitting on cash, they are opting to play it safe and invest in government securities rather than the industry.

“Apart from expectations of a rate cut next week, banks are reluctant to lend,” Balasubramanian said.

State Bank of India’s one-year MCLR rate is 8 per cent and the surplus SLR (statutory liquidity ratio) in the system — or the ratio of government securities that banks need to hold — is now over 5 per cent . However, banks are preferring to buy G-secs.

The system is awash in liquidity with the surplus averaging close to Rs 2 lakh crore for several months now, dipping only slightly during the festive month of October. But banks are unwilling to take risks at a time when the economy is slowing. Loan growth dropped to a two-year low of 7.9 per cent year-on-year in the fortnight to November 9.

Given that banks have dropped their deposit rates sharply — and by a bigger amount than they have lowered loan rates, their margins would not have been affected.

Manish Wadhawan, fixed income and forex expert, said the market is anticipating a rate cut at the RBI review meet on December 5. “It expects the central bank’s stance to remain benign over a long period of time. The excess banking system liquidity will continue for at least the next six months apart from seasonal dips expected in December and March,” Wadhawan said.—FE

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