Indian banking system faces extreme cash crunch
NEW DELHI: Year 2010 is proving to be a year of fund crunch for The Indian banking system is facing an extreme fund crisis in 2010. Although the Central Bank announced measures to inject 48, 000 crore into the system, banks still had to use the repo route to raise a record of 1.59 lakh crore.
The interest rate in the call money market refers to an overnight market which is used by banks in order to loan or borrow from other banks was as high as 7 percent. This clearly shows that the bankers have not yet become alert although they are facing such a crisis.
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The market has been provided some comfort zone as RBI made a move so as to reduce the lowest share level of government securities which is referred to as the statutory liquidity ratio (SLR). When drawn a comparison, banks indeed possess higher sur- plus holdings of the government securities although the new floor is almost 24 percent. The bankers are trying to bring in some discipline in the market and plan to continue with it till the month end so as to monitor the extra expenditure that occurs when the government pays salaries and pension.
In order to have an exact count and also to ensure that the system contains adequate amount of cash,the government had lowered its market borrowing to 6,000 crore this week, from the earlier scheduled 11,000 crore, to ensure that adequate amount of cash was available in the system,although it already has a deposit of 1 lakh crore. According to RBIs announcement last week, it's due to purchase bonds of Rs 48,000 crore over the next one month.
Ever since the companies made a payment over Rs 1 lakh crore in July for use of spectrum, liquidity has remained under strain. -PB News