‘System liquidity appears to be skewed in favour of some banks’
1 min read 08 Jun 2023, 10:48 PM ISTRBI has been conducting various rate reverse repo auctions to suck out surplus liquidity after the withdrawal of the ₹2,000 notes amounting to ₹3.62 trillion and dividend payout by the RBI to the government of ₹87,416 crore.
PremiumMumbai: Systemic liquidity in the Indian banking system appears to be skewed in favour of some banks as opposed to others, according to RBI governor Shaktikanta Das. For this reason, some banks which find themselves short of liquidity, have been borrowing from the marginal standing facility window (MSF).
“The prevalence of surplus liquidity amidst higher recourse to marginal standing facility (MSF) by some banks suggests skewed liquidity distribution within banking system," said Das in his statement.
MSF window allows banks to do short-term overnight borrowing from the RBI in cases of tightness in system-wide liquidity. According to RBI, the daily average MSF borrowing increased to ₹13,654 crore in April-May 2023 from an average of ₹5,716 crore in February-March 2023.
RBI has also been conducting various rate reverse repo auctions to suck out surplus liquidity after the withdrawal of the ₹2,000 notes amounting to ₹3.62 trillion and dividend payout by the RBI to the government of ₹87,416 crore. Through these VRRR operations, RBI has mopped up nearly ₹1.5 trillion of excess liquidity from the system.
Das, however, said banks have been cautious in parking the excess liquidity with the RBI as quarterly advance tax outflows later this month would lead to a drain of funds from the system.
Despite this surplus liquidity, call money rates hardened in April and May before it eased from mid-May. According to RBI deputy governor Michael Patra, liquidity will be balanced if call money rate touches repo rate of 6.5%.
“We look at call money rate and look at it to get aligned with the repo rate, as soon as it is aligned we consider liquidity to be balanced out," the deputy governor said.