The average liquidity deficit in the banking system in the week ended February 28 moderated significantly to `94,585 crore, against the deficit of `1.28 lakh crore — an eight-week high — in the preceding week.
The fall in deficit by `34,266 crore was on account of higher government spending towards salaries and pensions, and liquidity infusion of `12,500 crore through open market operations (OMOs) by the Reserve Bank of India (RBI), according to a Care ratings report.
Non-food credit or loans to individuals and companies grew 14.3% year-on-year (y-o-y) during the fortnight ended February 15, marginally slower than 14.4% y-o-y reported in the previous fortnight. It has surpassed the deposit growth, recorded at 10.2%. “The lower deposit growth amid higher credit growth has been a factor contributing to the liquidity constrains in the banking system,” observe money market experts.
Foreign portfolio investors (FPIs) have pulled out close to $1.3 billion from the bond markets in February. “Increasing border tensions coupled with other emerging economies providing better yields have prompted foreign investors to pull out from Indian markets,” said a dealer.
The old benchmark bond —7.17% yielding notes maturing in 2028 — closed at 7.55% on Friday, March 1, while emerging economies such as Indonesia’s benchmark 10-year bond closed at 7.85% on the same day, according to data compiled by Bloomberg.
The banking sector continues to be in deficit for the 21st consecutive week, despite the liquidity infusion by the RBI through OMOs worth `37,500 crore in February. The central bank had conducted OMOs worth `50,000 crore in December and January.