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Banks have borrowed upto Rs. 94,250 crore from the Reserve Bank of India on the first day after the reporting Friday; such high bank borrowing was fueled by advance tax outflows worth Rs. 80,000 - 90,000 crore, coupled with year-end pressures to shore-up their books. Banks are always looking at strengthening their balance sheets at this time of the year by shoring up their deposits and credit figures.
This strengthening of the balance sheet calls for building up regulatory reserve requirements. A portion of the deposits of the bank are to be parked with the Reserve Bank of India (RBI) in the form of regulatory reserves. As deposits gather pace, cash requirement also go up, requiring them to raise funds from the market to meet the shortfall. After the government started spending, liquidity began to ease in the system, which is reflected in the government balances with RBI at minimum Rs. 101 crore.
However, banks have been forced to borrow from the RBI due to huge outflows resulting from advance tax outflows; this borrowing is facilitated in repo by pledging securities. The traded volumes in the collateralized borrowing and lending obligation (CBLO) market went up to Rs. 66, 633 crore from Rs. 3,453 crore.
Volumes in the call market were up at Rs 16,292 crore, according to CCIL data. Bond yields also reacted to higher-than-expected inflation data. The most traded 8.08% G-sec 2022 closed at a yield of 8.10% from the previous close of 8.06% and the second most liquid paper 8.13% G-sec 2022 also closed at 8.10%.
It is estimated that the tightness in liquidity could also put pressure on bond yields in a couple of days to come. Yields on certificates of deposits, or CD rates, have also come off as liquidity in the system has eased.