Banks borrow record 1.61 trillion from RBI

Banks borrow record 1.61 trillion from RBI

Mumbai: Banks on Monday borrowed a record 1.61 trillion from the Reserve Bank of India as liquidity in the banking system continued to remain tight even as the central bank said it will buy up to 12,000 of bonds from the secondary market on Wednesday.

The reason for high borrowing can be attributed to the start of the fortnight that would end with the year.

Banks are required to maintain 6% of their deposit base in cash with the central bank at the end of the fortnight. Fearing tight liquidity banks tend to horde up the cash at the start of the fortnight itself in case they fail to manage their required fund at the last minute. Due to this practice banks borrowing from RBI always reaches very high level at the start of the fortnight.

RBI on 16 December monetary policy concentrated on easing liquidity pressure in the system and had announced 48,000 crore of bond purchase from the secondary market in the next one month. The first tranche of that borrowing is coming on Wednesday where the central bank will be buying 5 year, 7 year and 10 year bonds aggregating up to 12,000 crore, RBI said on its website.

Anup Roy