RBI holds special repo auction as GST outflow tightens liquidity

 









The Reserve Bank of India (RBI) on Thursday conducted a variable rate repo operation to infuse liquidity, instead of its usual variable rate reverse repo operations (VRRR) to suck out cash, as a larger-than-expected goods and services tax (GST) collection tightened liquidity this week.

The central bank proposed to lend the banking system Rs 50,000 crore for a day, and got bids for Rs 65,700 crore. The cut-off rate was 4.06 per cent, and the weighted average rate 4.10 per cent, higher than the repo rate of 4 per cent. The weighted average call money rate, which the banks use for interbank lending, touched 4.3587 per cent on Thursday, showing liquidity stress in pockets of the banking system.


The lowest call money rate was 2.80 per cent, while the highest rate paid as call money was 4.65 per cent. This, according to bond market participants, reflected liquidity asymmetry, where one set of banks is low on liquidity while the money concentrates with the lender banks, usually public sector banks, because of their higher deposit base.

This is further bolstered by the fact that the total system liquidity is at a surplus of Rs 6 trillion, enough




for the money market rates to remain soft. But even the overnight interbank rates have risen above the repo rate, along with the rise in money market rates and the 10-year bond yields.

“The system is now too used to largesse from the RBI. Any act of shaking the system out of this torpor will not be easy. Banks will push up the bond rates and force the RBI to relax its grip. Smaller private sector banks, though, are not as liquid as they were a few months back,” said a senior economist who follows the RBI closely.

The central bank has been continuously doing the VRRR auctions, aiming to remove progressively higher amounts from the banking system as its extraordinary liquidity measures flooded the banking system with funds.



Till December 31, the central bank had planned to remove Rs 7.5 trillion of liquidity through a 14-day VRRR auction. But in the auctions, banks had parked only Rs 2.67 trillion. The central bank tried to make good of the shortfall by conducting a Rs 5-trillion reverse repo auction on January 14, but banks offered Rs 4.31 trillion.

This indicated liquidity tightening in the system, while the GST collection may have aggravated the situation.

The central bank said in its statement that the tightened liquidity is reflecting in the “hardening of overnight money market rates, and in amounts under the fixed rate reverse repo of the liquidity adjustment facility (LAF)”.

It said it is rebalancing the surplus liquidity in the system by shifting from a fixed rate overnight reverse repo window to VRRR auctions of longer maturity.

This rebalancing “has proceeded on a pre-announced glidepath and has evolved satisfactorily”, it said, adding it will “continue to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy”.

The central bank has been continuously doing the VRRR auctions, aiming to remove progressively higher amounts from the banking system as its extraordinary liquidity measures flooded the banking system with funds.



Till December 31, the central bank had planned to remove Rs 7.5 trillion of liquidity through a 14-day VRRR auction. But in the auctions, banks had parked only Rs 2.67 trillion. The central bank tried to make good of the shortfall by conducting a Rs 5-trillion reverse repo auction on January 14, but banks offered Rs 4.31 trillion.

This indicated liquidity tightening in the system, while the GST collection may have aggravated the situation.

The central bank said in its statement that the tightened liquidity is reflecting in the “hardening of overnight money market rates, and in amounts under the fixed rate reverse repo of the liquidity adjustment facility (LAF)”.

It said it is rebalancing the surplus liquidity in the system by shifting from a fixed rate overnight reverse repo window to VRRR auctions of longer maturity.

This rebalancing “has proceeded on a pre-announced glidepath and has evolved satisfactorily”, it said, adding it will “continue to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy”



Download our App to get knowledge updates: https://play.google.com/store/apps/details?id=com.app.gstmitra




Join Our Telegram Channel for more updates:https://t.me/praveengst































































Comments

Post a Comment

Popular posts from this blog

Centre appeals against ruling on levy of GST on maintenance charges to resident welfare associations

Image
  The Centre has preferred a writ appeal before the Madras High Court against a single judge's order that flat or villa owners paying more than ₹7,500 a month towards maintenance charges to their residents’ welfare associations must pay Goods and Services Tax (GST) at the rate of 18% only for the amount exceeding ₹7,500 and not for the entire monthly contribution. Justices T.S. Sivagnanam and Sathi Kumar Sukumara Kurup on Wednesday allowed an application filed by the Centre to dispense with production of a certified copy of the judgment passed by Justice Anita Sumanth recently and directed the Registry to list the appeal for admission in the usual course. Justice Sumanth had in July this year quashed an order passed by the Authority for Advance Ruling (AAR) on June 21, 2019 as well as a consequent circular issued by the Department of Revenue under the Union Finance Ministry on July 22, 2019 since both of them had insisted upon collecting GST for entire monthly contribution. The jud...
Read more

Seven key things to know before filing income tax return (ITR) for FY21

Image
  The last date to file income tax return for the financial year 2020-21 has been extended to September 30, 2021. Although there is more than two months left for the deadline to end, it is always recommended to complete the task as soon as possible and not to wait for the last minute. Worth mentioning here is that the income tax department last month launched a new e-filing portal (www.incometax.gov.in) to speed up the processing of tax returns. The I-T department will soon launch a mobile application, having all the features of the new portal. This year taxpayers have to take care of the following changes in the ITR filing process. 1) A new utility named JSON has been launched for filing tax return forms for FY21. At present, only three forms, ITR 1, 2 and 4 have been released. These new forms will import pre-fill data such as personal details, salary income, dividend income, interest income, capital gains and all the information available in Form 26AS. 2) Taxpayers will have the ...
Read more

Income Tax Dept detects ₹350 cr unaccounted cash receipts after raid in Rajkot

Image
  The Income Tax Department carried out a search and seizure operation on a real estate group based in Gujarat's Rajkot and found unaccounted cash receipts in various projects of approximately ₹350 crore, the Finance Ministry said on Friday. The group is among Gujarat’s prominent real estate builders and developers and is actively engaged in real estate, construction and land trading businesses in and around Rajkot. More than 40 premises were covered in the search operation. During the course of operation, many incriminating documents and digital evidences were seized indicating involvement of the group in unaccounted transactions. The IT sleuths found substantial evidence of transactions outside the regular books of accounts, unaccounted cash expenses, cash advances received and interest paid in cash. Evidence of on-money payments in real estate projects-flats, shops and land deals has also been found. Total unaccounted cash receipts in various projects of approximately ₹350 crore...
Read more