- Wealth PMS (50L+)
RBI announces a temporary cut in SLR (Statutory Liquidity Ratio, or what percentage of deposits go into govt. bonds) of 0.5% to even out huge demands in the face of the upcoming 3G auction payments and June advance tax.
The latest assessment of liquidity conditions suggests that there could be temporary liquidity pressures in the market largely due to changes in government balances on account of advance tax payments and 3G auctions. In order to address the temporary liquidity pressures, the following measures are being taken:
Scheduled commercial banks may avail of additional liquidity support under the LAF to the extent of up to 0.5 per cent of their net demand and time liabilities (NDTL). For any shortfall in maintenance of SLR arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc, temporary measure. This facility will be available till July 2, 2010.
The second LAF (SLAF) will be conducted on a daily basis up to July 2, 2010. The SLAF will be conducted between 4.00 p.m. and 4.30 p.m.
Both the 3G payments and June’s advance tax payments should be done around June 15, and the banks get a little leeway to build up the credit. How much though? Only about 25,000 cr. – I would imagine the issue will get much hotter than that?
The LAF is basically a way for banks to temporarily borrow from the RBI (Repo) or for the banks to place money with the RBI (Reverse Repo) for an ultra short period (1-3 days). Banks haven’t borrowed on repo for like two years now, and the reverse repo bit has been showing more than 50,000 cr. a day for a long time. At this point, repo is still shows no transactions, and reverse repo is around 4,000 cr.
This could mean a deposit rate increase in the next few weeks. Check your bank for these spikes of 8% or 9% or something like that. Also worth checking call-money rates in the call market – but why would you do that unless you’re a bank? I sometimes think I make too much of this stuff – no one seems to care, which is why there’s not even a single decent fixed income web site in India.