RBI reopens cash window,banks can access Rs 50k cr

With the money market still tight,the Reserve Bank decided to bail out banks who have had little choice but to borrow large sums from the central banks liquidity adjustment facility (LAF) window.

With the money market still tight,the Reserve Bank on Tuesday decided to bail out banks who have had little choice but to borrow large sums from the central banks liquidity adjustment facility (LAF) window. A second LAF window will be open for more than a month from November 9,till December 16. Banks will once again be allowed to maintain a smaller ratio of their net demand and time liabilities in the form of government securities,at 24 per cent rather than the mandated 25 per cent.

In other words,banks collectively can access around Rs 45,000-50,000 crore,though the shortfall in the system is estimated at close to Rs 80,000 crore even after refunds from the Coal India IPO have now been accessible for more than a week.

Meanwhile,the overnight call rates remained high at 7.50 per cent. Banks borrowed a net of Rs 1,09,720 crore from the central banks first LAF window. This is a slightly smaller amount compared with Rs 1,1,6,340 crore borrowed on Monday. The special second LAF saw banks picking up a net of Rs 6,825 crore. The yield on the ten-year benchmark bond rose to 8.02 per cent from 8.01 per cent on Monday.

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State Bank of India chairman OP Bhatt had observed on Monday that interest rates were likely to face an upward bias. Bhatt had pointed out that the tight liquidity in the system and a healthy demand for credit were likely to keep interest rates firm.

Says Jayesh Mehta,managing director and country treasurer,Bank of America,Liquidity has been somewhat in short supply since the start of the year. But the tightness has been accentuated partly because the RBI has chosen to keep it that way. Mohan Shenoy,head of treasury at Kotak Mahindra Bank said liquidity is tight even after the Coal India refunds were in. He said this is probably because the government wasnt spending.

While aboard INS Vikrant, the Prime Minister had a packed schedule of engagements, officials said.

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