Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
General

MSF Borrowing Reaches a Record 736 Billion; Liquidity Is Very Tight

Banks borrowing through the Marginal Standing Facility (at 10.25%) has now gone to an extreme, at 73,000 cr.

MSF Borrowing Chart

The dip you see around September 3/4 was due to a huge repayment of the 2013 bond at that time. But as you can see, that impact quickly faded.

This is of course less than the current limit of 2% of Net Demand and Time Liabilities (i.e. deposits for the most part). Current NDTL is nearly 80 lakh crore rupees (80 trillion) so they can go upto Rs. 160K crores, or Rs. 1.6 trillion.

However, this is the highest ever MSF borrowing from the system. This could be due to the upcoming September 15 tax deadline (money is paid to the government account within the RBI and thus is out of circulation).

Effectively, interest rates for banks are now at 10.25%. I wonder why they aren’t rapidly increasing deposit rates, at the short end, to match.