* - bankers
Mumbai: A cash crunch in India’s banking system, which drove the one-year overnight indexed swaps to a 20-month high on Friday, should begin to ease by the end of July, bankers said on Monday after a meeting with the central bank.
Cash available with banks have been tight after telecom companies pulled out more than $21 billion to pay for 3G licences and broadband spectrum in late May and June.
“Liquidity is expected to improve by July-end and beyond,” said O.P. Bhatt, chairman of State Bank of India, the country’s largest lender.
He was speaking with reporters after customary talks with the Reserve Bank of India (RBI) ahead of 27 July monetary policy, when the central bank is widely expected to raise rates by a quarter point in its fourth such move since mid-March.
Industrial output grew at a slower-than-expected 11.5% from a year earlier, but expectations of a central bank rate hike for the second time this month remain unchanged due to inflationary pressures.
“Both bankers and the RBI agree that the current tightness is only a temporary thing and government spending will ease the tightness by this month end,” said another banker.
Bhatt said bankers had told the central bank that a 20% loan growth target was achievable in the current fiscal year to March.