Banks cold shoulder RBI's term reverse repo auction

MUMBAI: Banks have given a muted response to the Reserve Bank of India’s ( RBI) 4-day term reverse repo auction, a window from where the central bank borrows from banks to suck out excess liquidity.

On Thursday, banks lent a meagre Rs 200 crore compared to the total limit of Rs 20,000 crore slated for the auction. This was just 1% of the total amount, indicating their apathy to blocking money for four days at aweighted average rate of 7.99%.

“Banks having surplus funds did not want to block their money for four days towards the weekend,” said Ashutosh Khajuria, Head-Treasury, Federal Bank. “They have better lending options in call-money, or CBLO markets, with acceptable returns.”

The cut-off rate in today’s term reverse repo auction was at 8%. Interestingly, banks with liquidity surplus have lent Rs 37,234 crore to the central bank in the overnight reverse repo auction at 7%.

The weight average rate was at 7.74% in the inter-bank overnight call money market where lenders lend to each other. However, a bank, which may have asudden lending requirement, can get back the money in just a day.