When profits are on call

When profits are on call

The year-end scramble for funds pushed up call money rates to as high as 70%. Who was lending money at those sky-high rates?

Whoever it was must have made a killing. The average daily turnover in the call money market, where banks lend to one another, is around Rs15,000 crore. Let’s assume that the average rate at which some funds-starved banks borrowed was 50%. That translates into a daily interest rate of around 12-14 basis points, or 0.12-0.14%.

The lending banks must have thus earned around Rs20 crore a day over three days. That translates into a total trading profit of Rs60 crore. Not bad for a few days’ work.

As we said earlier, it is not clear who these lending banks were. In an interview with Mint that was published on Wednesday, State Bank of India chairman O.P. Bhatt said his bank was one of the lenders.

Of course, this is not a case of profiteering, but merely a benefit of financial prudence.