Advance tax surge may lift bank borrowing next week

MUMBAI: A surge in advance tax payments may push up bank borrowing in the coming week, which may touch Rs 1 lakh crore, leading to a short-term spike in market rates.

Banks borrowed Rs 85,470 crore from the Reserve Bank of India at a higher rate of 7.50% from the repo window. Bankers expect the liquidity situation to worsen in the coming week with the demand for loans still remaining above 20%. "The high borrowing is partly because of advance tax outflows.

Funds are expected to come back into the system in a fortnight's time. In the interim period, negative liquidity could be upwards of Rs one lakh crore." said Mohan Shenoi, head, treasury, Kotak Mahindra Bank. Bankers however are prepared for such crunch in funds, as most banks had covered before the policy.

"This kind of figure (funds borrowed from RBI through repo window) is expected and manageable. It is not as bad as it could be. Banks had overcovered prior to the credit policy. Next week, the borrowing could go up further. But banks have enough SLR ( statutory liquidity ratio) funds to cover for the shortfall in liquidity." said Harihar Krishnamoorthy, head, treasury, FirstRand bank.