As told in my earlier post on linkedin, Banking System got the liquidity of over 2Tn on Friday, but Liquidity still remains into deficit of (₹59,260Cr).
The question is why liquidity is in deficit despite the banking system got liquidity?
As liquidity was provided to benefit the high value borrowers which happened but not meaningfully. Banks still had to borrow ₹36,142Cr which looks smaller as compared to previous day borrowing but looks big if we look at this number in isolation factoring in the liquidity support being available on that particular day.
The Liquidity support has been divided/shared between depositors & borrowers.
Hence on Friday we saw, MSF borrowings has come down, which was the core reason to provide liquidity support, but SDF Volume (₹92,154Cr) also jumped significantly.
Currently, this looks like skewed distribution of liquidity where MSF borrowings and SDF deposits both are in good volume, but I think as we move towards 20th Dec’23, SDF volume will come down gradually & skewed distribution of liquidity should even out due to liquidity pressure arising out of heavy GST outflows.
Banks have borrowed through VRR for their preparedness not only for advance tax outflows but also for upcoming GST outflows which have been quite robust. It is not a good idea for banks to take VRR roll over for granted looking at their current approach to keep inflation in check as RBI would never like skewed liquidity to sustain for long.
Hence, “Precaution is better than Cure” & borrow in advance, stay put on surplus for some time which can be utilized timely during GST outflows.
Today Highest Rate for Call/TREP both have been at 6.90%!
