RBI announces reduction in the quantum of the government’s treasury bill sales
liquidity conditions, the central bank has announced a steep reduction in the quantum of the government’s treasury bill sales and a new selection of bonds for the Centre’s buyback operations to aid freeing up cash for banks.
Liquidity conditions in the banking system tightened considerably this month, largely due to a muted pace of government spending amid the ongoing general elections, market participants said. Tight liquidity conditions increase cost of funds for banks, especially at a time when credit growth continues to outpace deposit growth by a long margin. Higher borrowing costs for banks pushes up the cost of borrowing across the economy.
So far in May, average daily deficit liquidity as measured by banks’ borrowing from the RBI was at Rs 1.2 lakh crore.
Price factor:
In recent interactions with the RBI, banks — particularly stateowned lenders — requested that the government securities offered in the Centre’s buyback auctions be selected in a way that facilitates bidding at levels that both lenders and the central bank are comfortable with, sources aware of the developments said. Banks had also proposed the idea of reducing the quantum of T-bill borrowing.
An email sent to the banking regulator did not receive a response by the time of publication.
Following two successive government bond buyback auctions in which discomfort with the prices at which banks offered to sell bonds prompted the RBI to reject most bids, the central bank has come out with a fresh list of securities for such repurchases while
