RBI Governor Shaktikanta Das has said it is desirable that banks having surplus funds explore lending opportunities in the interbank call money market, rather than parking funds in SDF (standing deposit facility) at relatively less attractive rates.

Das underscored that elevated levels of MSF (marginal standing facility) borrowings amidst substantial funds parked under the SDF is symptomatic of skewed liquidity distribution in the banking system.

“A set of banks are depositing in SDF (everyday more than Rs 1 lakh crore). Sometimes, it exceeds Rs 1.50 lakh crore. At the same time, there are other banks which are borrowing from RBI’s MSF an equivalent amount

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“So, obviously, the distribution of liquidity in the banking system is skewed. This was reflected in the firming of the weighted average call rate/ WACR (which is the operating target of monetary policy),” the Governor said.

Despite such hardening at the short-end of the term structure, the average term spread in the G-Sec market (10-year G-Sec minus 91-day T-bill) remained at around 40 basis points in August and September, suggesting stable financial conditions.

He noted that in recent months, banks have preferred to place funds under overnight SDF instead of offering them in the main 14-day VRRR (variable rate reverse repo) operations

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“It is imperative that banks assess their actual liquidity requirements over the reserve maintenance cycle and bid accordingly in the auctions under the main 14-day VRRR operations of RBI,” Das said.

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Greater volume of call money transactions would not only deepen the money market, but also lower the recourse of deficit banks to the MSF.

Referring to latest RBI data, Gopal Tripathi, President and Head, Treasury and Capital Markets, Jana Small Finance Bank, observed that while Banks with liquidity deficit borrowed Rs 80,502 crore via MSF at 6.75 per cent, those with surplus deployed Rs 55,695 crore in SDF at 6.25 per cent.

So, the central bank wants Banks with surplus liquidity to deploy funds in the interbank call money market so that they can earn a better return than SDF rate even as those with liquidity deficit can borrow from the same market at a rate lower than MSF, he added.

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