India’s central bank said it will inject funds into the banking system to ease a cash shortage after the nation’s record share offering by state-owned Coal India Ltd. drained money.
The monetary authority will conduct special repurchase auctions today, tomorrow and Nov. 1, allowing banks to borrow from it at 6 percent, the Reserve Bank of India said in an e- mailed statement today. The overnight call money rate touched 12.25 percent today, the highest level since Nov. 1, 2008, indicating demand for cash pushed up interbank lending rates.
”This will enable banks to plan their liquidity better,” said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai. “The balance is far tipped to provide liquidity than worrying about inflation at this point.”
Surplus cash in the banking system dried up as investors withdrew money to pay for the shares of state-owned Coal India, the world’s biggest producer of the fuel, at its initial public offering last week. Orders at the sale reached 15 times the stock available, helping the government raise 152 billion rupees ($3.4 billion).
Banks will be allowed to borrow up to one percent of their deposits based on their liabilities as on Oct. 8, the monetary authority said. This will be in addition to the amount they can borrow by pledging bonds held by them above the so-called Statutory Liquidity Ratio. Reverse-repurchase auctions will also be conducted on all the three days to mop up any surplus.
Banks have to invest 25 percent of their deposits in low- risk debt, including government bonds, approved by the central bank. Penal interest will be waived on banks that fall short of bond reserve requirements temporarily, according to the statement.
Lenders borrowed an average of 603 billion rupees ($13.5 billion) a day from the central bank’s repurchase auction window in October, compared with an average of 250.8 billion rupees a day in September.
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