Banks' liquidity surplus set to improve: CARE Ratings

On outlook on banking system liquidity for the September 23-27 week, the net liquidity surplus in the banking system is likely to improve from a week ago. At the same time, outflows from the banking system towards meeting festive demand, higher government borrowings and the fortnightly reporting of banks with the RBI and month-end fund requirements by corporates could also weigh in on banking system liquidity and limit the rise in the surplus.

Mumbai: The net liquidity surplus in the banking system is likely to improve in the last week of September, though outflows from the banks will continue to meet festival demands and month-end requirements by corporates, CARE Ratings has said.

"On outlook on banking system liquidity for the September 23-27 week, the net liquidity surplus in the banking system is likely to improve from a week ago. At the same time, outflows from the banking system towards meeting festive demand, higher government borrowings and the fortnightly reporting of banks with the RBI and month-end fund requirements by corporates could also weigh in on banking system liquidity and limit the rise in the surplus," CARE Ratings said.

"Liquidity surplus in the banking system during the previous September 16-20 week declined to the lowest level since end June 2019 due to outflows towards tax payments (advance tax and GST) and higher government borrowings (net of T-bills maturity), though the overall liquidity was in surplus," the rating agency said.

"Further pressuring the system liquidity was the higher quantum of currency with the public. It has witnessed a persistent increase since end August 2019 (an increase of Rs 0.26 lakh crore to Rs 22 lakh crore as of September 13, 2019) purportedly on higher festive demand," it said.

"At the same time, the sustained low growth in incremental credit (during Apr-Aug'19) amid higher deposit growth helped sustain the liquidity surplus in the banking system. The net liquidity surplus during the 16-20 September week is estimated to have ranged between Rs 0.32-0.50 lakh crore, sharply lower than the estimated surplus of Rs 1.37-1.53 lakh crore of the preceding week.

"During the week, the daily net absorption by the RBI from the banking system i.e. the daily repo and reverse repo operations (including the fresh term repo and reverse repo auction and excluding the outstanding term repo and reverse repo operations), was lower than Rs 1 lakh crore throughout the 16-20 September week with the highest daily absorption being Rs 0.89 lakh crore," the analyst firm said.