Cash crunch: Banks borrow Rs1.57 lakh crore from Reserve Bank of India today

Reflecting a big cash crunch in the system, banks made huge borrowings from the Reserve Bank of India (RBI) for the second consecutive day today, amounting to Rs1,57,625 crore - a little less than yesterday's record.

Banks had borrowed all-time record of Rs1,59,210 crore from the RBI on Monday through the repo window, which is a one-day facility from the central bank against government securities.

These figures are on net basis, since banks lent money as well to RBI through the reverse repo route.

Huge borrowings by banks continue even as the RBI, in its second mid-quarterly review recently, announced plans to buy up to Rs48,000 crore of bonds from the secondary market over the next four weeks. The first tranche of Rs12,000 crore would be purchased tomorrow.

The tight liquidity condition has prompted banks to seek the repo route increasingly to deal with their requirements.

On December 16 as well, banks had borrowed to the tune of Rs1,43,930 crore.

The extent of liquidity crunch can be gauged from the fact that banks have been borrowing Rs1 lakh crore on an average daily through the repo window since quarterly review in November.

The system is facing shortage of cash because of busy credit season, coupled with advance tax payments. Top 100 companies have paid Rs27,531 crore in advance tax this month.

In its mid-quarterly review, RBI had said that while overall liquidity in the system has remained in deficit consistent with the policy stance, the extent of tightness has been beyond the comfort level.

The central bank blamed it on persistence of large government cash balances which have averaged Rs84,000 crore since the quarterly review of November.

The government garnered over Rs65,000 crore more than the budget estimates through auction of spectrum for high speed mobile and broadband services. It also got Parliament nod to spend close to this much amount, over the budget estimates, in two supplementary demands for grants.

The RBI has also blamed sluggish growth in bank deposits for aggravating the shortage in money supply. This could partly be attributed to negative returns these deposits fetch for people, compared to inflation rate.

Recently, prompted by RBI, banks have hiked deposit rates.