MUMBAI, JAN 21: The surplus liquidity which characterised the banking system in recent months is vanishing fast, thanks to a host of measures announced by the Reserve Bank of India to arrest the fall of the rupee against dollar.
8220;The increase in source of bank funds, primarily deposits, is not keeping pace with the demand for rupee funds through the loans and investment route,8221; ICICI Securities and Finance Company I-Sec said in its latest debt markets update released on Monday.
In early October, banks had parked Rs 12,054 crore in short-term money market instruments such as 14-day treasury bills and repos. This amount fell to Rs 543 crore on January 15, it said.
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I-Sec, a joint venture between ICICI and foreign investment bank JP Morgan, attributed the following reasons for tightening liquidity.
Volatility in the foreign exchange market has seen the Reserve Bank of India RBI intervene regularly to either prevent a sharp depreciation in the spot rate or to keep forward premiums at a reasonable level. 8220;This intervention, estimated at 2.5- 3.0 billion, has drained rupee liquidity from the banking system.quot;
To curb speculation in the currency market, RBI has indefinitely postponed the cash reserve ratio reductions announced in the October credit policy and also rolled back the 0.5 percentage point cut which was already implemented. 8220;Reversal of the 0.5 percentage point CRR cut in December has resulted in an outflow of Rs 2,500 crore from the banking system,8221; the study said.
The last three months have seen a fairly significant turnaround in bank credit which has increased by Rs 6,684 crore compared to Rs 4,956 crore in the first six months of the financial year,quot; it said.
