Liquidity Strains? Bank Borrowing at 4mth High

Banks borrow over . 1 lakh cr through RBI's repo window Surplus liquidity in the banking system has proved to be short-lived as lenders' borrowing from the Reserve Bank has risen to a four-month high, signalling monetary management may be getting tricky with slowing deposits growth. The demand for loans is also lower than what the RBI had projected, but the demand for cash from customers in the festival season and banks' repayment obligations are straining liquidity, bankers said.  On Thursday, banks borrowed . 1.01 lakh crore through the RBI's repo window, the highest since June 19. Banks can borrow funds by pledging government securities to meet their short-term asset-liability mismatch. They also borrow to meet the 4.5% cash reserve ratio, or CRR — the proportion of deposits they have to keep with the central bank.  The surge in the borrowing is not worrisome as yet since there's an overall surplus in the system with some banks owning government bonds well above the stipulated 23%. "The liquidity is very much within the Reserve Bank of India's level of comfort," said Sanjay Arya, executive director, United Bank of India. "The rise in borrowing is just an outcome of product management by banks. Rates on commercial paper or certificate of deposits have not risen sharply and the call rates have been steady, which shows the liquidity situation is not worrying.''  Yet another reason bank treasuries cite for the tightness in liquidity is the marginal rise in CBLO or collateralised borrowing and lending obligation rates, which is the overnight borrowing market. The rates in the CBLO markets have risen to 8.14% from below 8% in the last few days, forcing banks to borrow from the RBI's repo window rather than borrowing from the CBLO market.