Call money rates shoot up to 15% intra-day

On the last day of the fiscal, overnight rates shot up to double digits as banks rushed for funds ahead of the holidays beginning tomorrow. The next trading day for the call money and Borrowing and Lending Obligation (CBLO) is on Saturday.

The call money rates moved up to as high as 15% during intra-day trades though it ended at 9% compared with 7.7% yesterday. The weighted average rate stood at 11.21% today compared with 7.8% yesterday.

Since this time the reporting Friday is a bank holiday, today was considered the day for fixing bank's Net Demand and Time Liabilities (NDTL). NDTL is measured every alternate Fridays and these Fridays are called reporting Fridays.

Tomorrow is a bank holiday for stock taking and accounts closure for FY15 while Thursday and Friday are declared bank holidays for Mahavir Jayanti and Good Friday respectively.

“Banks were covering heavily their product requirements ahead of the holidays due to which overnight rates shot up. Besides that there were outflows due to tax payments which was putting pressure on liquidity,” said a senior treasury official of a state-run bank.

Though the Reserve Bank of India (RBI) will conduct reverse repo and Marginal Standing Facility (MSF) operations on Thursday, but MSF being the penal rate, borrowing by banks under the MSF rate is higher by 100 basis points compared with the repo rate which stands at 7.50%. wants call money rates to hug the repo rate.

“Today being the last day of the financial year not many banks were lending. So whosoever was lending, they demanded higher rates in overnight lending,” said a treasury official with a large private bank.

Today though RBI infused liquidity through three term-repos totaling to Rs 50,503 crore, there was a strain faced by banks.

Banks have to adhere to a Cash Reserve Ratio (CRR) requirement of 95% daily and 100% on a fortnightly basis. CRR is the proportion of total deposits a bank has to keep with RBI as cash. The CRR currently stands at 4% of bank's Net Demand and Time Liabilities (NDTL). This does not earn them interest.

In fact many banks including the largest lender State Bank of India (SBI) wants the CRR requirement of 95% daily to be reduced. “The minimum requirement of maintaining CRR on a daily basis need to be reduced from 95% to 85%,” said SBI in its monthly publication named SBI Eco Watch.