The average liquidity deficit in the banking system in the week ended February 28 moderated significantly to Rs 94,585 crore, against the deficit of Rs 1.28 lakh crore — an eight-week high — in the preceding week.
The fall in deficit by Rs 34,266 crore was on account of higher government spending towards salaries and pensions, and liquidity infusion of Rs 12,500 crore through open market operations (OMOs) by the Reserve Bank of India (RBI), according to a CARE Ratings report.
Non-food credit or loans to individuals and companies grew 14.3 per cent year-on-year (y-o-y) during the fortnight ended February 15, marginally slower than 14.4 per cent y-o-y reported in the previous fortnight. It has surpassed the deposit growth, recorded at 10.2 per cent. “The lower deposit growth amid higher credit growth has been a factor contributing to the liquidity constrains in the banking system,” observe money market experts.
Foreign portfolio investors (FPIs) have pulled out close to $1.3 billion from the bond markets in February. “Increasing border tensions coupled with other emerging economies providing better yields have prompted foreign investors to pull out from Indian markets,” said a dealer.
The old benchmark bond —7.17 per cent yielding notes maturing in 2028 — closed at 7.55 per cent on Friday, March 1, while emerging economies such as Indonesia’s benchmark 10-year bond closed at 7.85 per cent on the same day, according to data compiled by Bloomberg.
The banking sector continues to be in deficit for the 21st consecutive week, despite the liquidity infusion by the RBI through OMOs worth Rs 37,500 crore in February. The central bank had conducted OMOs worth Rs 50,000 crore in December and January. —FE