III. Monetary and Liquidity Conditions - આરબીઆઈ - Reserve Bank of India
III. Monetary and Liquidity Conditions
CONDITIONS
Monetary and liquidity conditions have remained comfortable during 2006-07 so far. Strong acceleration in deposit growth was able to accommodate sustained growth of bank credit. Growth in non-food credit has remained above 30 per cent, year-on-year (y-o-y), for more than a year. Time deposits have recorded large accretion in 2006-07 so far, partly reflecting higher interest rates as well as availability of tax benefits under Section 80C. Concomitantly, broad money growth has remained above the indicative trajectory, indicative of strong demand conditions. Banks increased their investments in Government securities in the first half of 2006-07 in contrast to the second half of 2005-06 when they liquidated their gilt investments. The Reserve Bank continued to absorb liquidity through reverse repo operations under the liquidity adjustment facility (LAF) during the first half of 2006-07 and issuance of securities under the Market Stabilisation Scheme (MSS). Reserve money growth during the fiscal year 2006-07 so far has been driven by accretion to the Reserve Bank's net foreign assets (NFA).
Monetary Survey
Broad money (M3) growth, y-o-y, accelerated to 19.0 per cent as on October 13, 2006 from 16.8 per cent a year ago, and remained above the indicative trajectory of 15.0 per cent projected in the Annual Policy Statement in the beginning of the year (April 2006) (Chart 11). On a fiscal year basis (up to October 13, 2006), M3 growth at 7.8 per centwas higher than that of 6.1 per cent in the corresponding M3period of 2005-06. In this context, it may be noted that data on fiscal year variations
in monetary and banking indicators for 2005-06 have been worked out with respect to April 1, 2005 as the base date. Conventionally, the Reserve Bank publishes data on monetary and banking aggregates on a fortnightly basis on alternate Fridays. Variations in monetary and banking aggregates for a particular financial year are worked out in relation to the last reporting Friday of the previous financial year. Thus, variations for banking data during 2005-06 would have been conventionally calculated from March 18, 2005, which was the last reporting Friday of the previous financial year. This would have resulted in the incorporation of data for an additional fortnight in the variations in monetary and banking aggregates for 2005-06 in relation to the same for 2006-07. For meaningful comparison of variations in monetary and banking variables in 2005-06 with those of 2006-07 on a financial year basis, April 1, 2005 has been taken as the base date for 2005-06.
Expansion in the residency-based new monetary aggregate (NM3) was higher than M3, mainly on account of net outflows under foreign currency deposits (Table 16).
Table 16: Monetary Indicators |
||||||||||
(Amount in Rupees crore) |
||||||||||
Item |
Outstanding |
Variation (year-on-year) |
||||||||
as on |
||||||||||
October 14, 2005 |
October 13, 2006 |
|||||||||
October 13, |
||||||||||
2006 |
Amount |
Per cent |
Amount |
Per |
cent |
|||||
1 |
2 |
3 |
4 |
5 |
6 |
|||||
I. |
Reserve Money * |
6,16,950 |
63,088 |
14.0 |
1,04,495 |
20.4 |
||||
II. |
29,43,426 |
3,56,328 |
16.8 |
4,69,205 |
19.0 |
|||||
Broad Money (M3) |
||||||||||
a) |
Currency with the Public |
4,44,102 |
48,164 |
14.6 |
65,445 |
17.3 |
||||
b) |
Aggregate Deposits |
24,93,864 |
3,09,741 |
17.4 |
4,03,393 |
19.3 |
||||
i) |
Demand Deposits |
3,94,834 |
62,732 |
24.1 |
71,363 |
22.1 |
||||
ii) |
Time Deposits |
20,99,030 |
2,47,009 |
16.3 |
3,32,030 |
18.8 |
||||
of which: Non-Resident |
Foreign Currency Deposits |
64,147 |
1,473 |
1.9 |
-13,889 |
-17.8 |
||||
III. |
29,55,303 |
3,61,937 |
17.2 |
4,84,379 |
19.6 |
|||||
NM3 |
||||||||||
of which: Call Term Funding from Financial Institutions |
84,039 |
13,121 |
20.0 |
5,226 |
6.6 |
|||||
IV. |
a) |
30,47,504 |
3,89,392 |
18.1 |
4,69,905 |
18.2 |
||||
L1 |
||||||||||
of which: Postal Deposits |
93,221 |
17,580 |
22.1 |
-4,027 |
-4.1 |
|||||
b) |
30,50,436 |
3,85,518 |
17.9 |
4,69,916 |
18.2 |
|||||
L2 |
||||||||||
of which: FI Deposits |
2.932 |
-3,874 |
-57.0 |
11 |
0.4 |
|||||
c) |
30,72,130 |
3,87,968 |
17.8 |
4,69,916 |
18.1 |
|||||
L3 |
||||||||||
of which: NBFC Deposits |
21,694 |
2,450 |
12.7 |
– |
– |
|||||
V. |
Major Sources of Broad Money |
|||||||||
a) |
Net Bank Credit to the Government (i+ii) |
8,05,300 |
12,451 |
1.6 |
34,460 |
4.5 |
||||
i) |
Net Reserve Bank Credit to Government |
2,776 |
-32,198 |
– |
14,109 |
– |
||||
of which: to the Centre |
2,567 |
-26,886 |
– |
13,928 |
– |
|||||
ii) |
Other Banks’ Credit to Government |
8,02,524 |
44,649 |
6.1 |
20,351 |
2.6 |
||||
b) |
Bank Credit to Commercial Sector |
18,36,535 |
3,07,696 |
26.9 |
3,83,390 |
26.4 |
||||
c) |
Net Foreign Exchange Assets of Banking Sector |
7,87,161 |
93,449 |
16.1 |
1,13,179 |
16.8 |
||||
Memo: |
||||||||||
SCBs’ Aggregate Deposits |
22,94,293 |
2,98,229 |
18.6 |
3,93,849 |
20.7 |
|||||
SCBs’ Non-food Credit |
16,10,275 |
2,97,903 |
31.8 |
3,76,105 |
30.5 |
|||||
* : Data pertain to October 20, 2006. |
Non-resident foreign currency deposits such as India Millennium Deposits (IMDs) and FCNR(B) are not directly reckoned in NM3. The redemption of IMDs in December growth. 2005 depressed M3 growth while having no direct impact on NM3
Demand for currency has recorded a higher order of expansion during the fiscal year 2006-07 so far, partly reflecting early onset of festival season demand (Table 17). On a year-on-year basis, growth in currency with the public increased from 14.6 per cent as on October 14, 2005 to 17.3 per cent as on October 13, 2006 in consonance with acceleration in economic activity.
Demand deposits increased during the second quarter of 2006-07 as against a decline in the previous quarter, reflecting the usual seasonal pattern.
Table 17: Monetary Aggregates – Variations |
||||||||||
(Rupees crore) |
||||||||||
Variation during |
||||||||||
2005-06 |
2005-06 |
2006-07 |
2005-06 |
2006-07 |
||||||
(April- |
(up to |
(up to |
||||||||
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|||||
March) |
Oct.14) |
Oct.13) |
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
(=1+2+3=4+5+6+7-8) |
3,96,868 |
1,41,555 |
2,13,891 |
27,448 |
1,22,457 |
45,106 |
2,01,857 |
55,248 |
1,57,634 |
|
M3 |
||||||||||
(6.1) |
(7.8) |
|||||||||
Components |
||||||||||
1 |
Currency with the Public |
58,272 |
23,787 |
30,960 |
20,492 |
-10,835 |
30,124 |
18,491 |
25,603 |
-4,060 |
(6.7) |
(7.5) |
|||||||||
2 |
Aggregate Deposits with Banks |
3,38,037 |
1,18,995 |
1,84,350 |
8,819 |
1,32,531 |
15,729 |
1,80,958 |
31,259 |
1,61,233 |
(6.0) |
(8.0) |
|||||||||
2.1 Demand Deposits with Banks |
83,861 |
2,109 |
-10,389 |
-21,953 |
41,566 |
-2,357 |
66,604 |
-43,025 |
33,857 |
|
2.2 Time Deposits with Banks |
2,54,176 |
1,16,886 |
1,94,740 |
30,772 |
90,965 |
18,086 |
1,14,354 |
74,283 |
1,27,376 |
|
(7.1) |
(10.2) |
|||||||||
3 |
‘Other’ Deposits with Banks |
560 |
-1,227 |
-1,419 |
-1,862 |
761 |
-747 |
2,408 |
-1,613 |
461 |
Sources |
||||||||||
4 |
Net Bank Credit to Government |
20,386 |
22,133 |
36,207 |
17,398 |
-5,017 |
-5,722 |
13,726 |
22,933 |
9,887 |
(3.0) |
(4.7) |
|||||||||
4.1 RBI’s net credit to Government |
35,799 |
16,329 |
-5,361 |
18,963 |
-25,251 |
19,879 |
22,208 |
53 |
2,826 |
|
4.1.1 RBI’s net credit to Centre |
33,374 |
16,853 |
-2,593 |
19,556 |
-25,251 |
19,812 |
19,256 |
3,071 |
2,584 |
|
4.2 Other Bank’s Credit to Government |
-15,413 |
5,805 |
41,568 |
-1,565 |
20,234 |
-25,601 |
-8,481 |
22,880 |
7,060 |
|
5 |
Bank Credit to Commercial Sector |
3,59,703 |
1,21,888 |
1,45,575 |
10,235 |
1,18,712 |
61,731 |
1,69,025 |
14,441 |
1,41,539 |
(9.2) |
(8.6) |
|||||||||
6 |
Net Foreign Exchange Assets of |
|||||||||
Banking Sector |
78,291 |
26,080 |
60,967 |
-12,026 |
24,062 |
27,701 |
38,554 |
58,087 |
11,392 |
|
6.1 Net Foreign Exchange Assets of RBI |
61,545 |
25,624 |
74,726 |
-13,243 |
24,823 |
23,741 |
26,224 |
71,845 |
11,392 |
|
7 |
Governments’ Currency Liabilities |
|||||||||
to the Public |
1,306 |
1,293 |
177 |
384 |
910 |
-100 |
112 |
146 |
31 |
|
8 |
Net Non-Monetary liabilities of |
|||||||||
Banking Sector |
62,817 |
29,840 |
29,035 |
-11,456 |
16,210 |
38,504 |
19,560 |
40,357 |
5,215 |
|
Memo: |
||||||||||
1 |
Non-resident Foreign Currency |
-16,876 |
1,885 |
4,872 |
804 |
187 |
1,856 |
-19,723 |
3,917 |
1,506 |
Deposits with SCBs |
||||||||||
2 |
SCBs’ Call-term |
11,224 |
6,892 |
895 |
-1,002 |
7,359 |
1,836 |
3,031 |
3,118 |
-1,611 |
Borrowing from Financial Institutions |
||||||||||
3 |
Overseas Borrowing by SCBs |
1,295 |
3,823 |
595 |
-925 |
3,618 |
-622 |
-755 |
3,301 |
-3,903 |
SCBs : Scheduled Commercial Banks. |
On a y-o-y basis, growth in demand deposits was 22.1 per cent as on October 13, 2006 as compared with 24.1 per cent recorded a year ago. Growth in time deposits, on the other hand, was higher than the previous year, reflecting higher interest rates, tax benefits as well as base effects. Scheduled commercial banks' time deposits growth accelerated to 20.2 per cent (y-o-y) as on October 13, 2006 from 17.5 per cent a year ago (Chart 12). Interest rates on time deposits of 1-3 years maturity offered by public sector banks have increased from a range of 5.75-6.75 per cent in March 2006 to 6.25-7.50 per cent by September 2006. Rates offered by private sector banks on similar maturity deposits moved from a range of 5.50-7.75 per cent to 6.75-8.25 per cent over the same period. Growth in time deposits appears to have also gained from tax benefits which have become available recently under Section 80C for deposits with maturity of five years and above. Concomitantly, postal deposits registered a sharp decline between end-March 2006 and end-September 2006.
Demand for bank credit from the commercial sector continued to remain strong during the second quarter of 2006-07. Scheduled commercial banks' non-food credit has increased by 9.8 per cent in the current fiscal year (up to October 13, 2006) (11.0 per cent during the corresponding period of the previous year). On a year-on-year basis, non-food credit registered a growth of 30.5 per cent as on October 13, 2006 on top of a base as high as 31.8 per cent a year ago. Reflecting the sustained credit growth of over 30 per cent for more than a year, the incremental credit-deposit ratio of SCBs has remained high though it has exhibited some moderation in recent months. As on October 13, 2006, the incremental credit-deposit ratio was 95 per cent as compared with over 100 per cent during the most part of 2005-06 (Chart 13). Scheduled commercial banks' food credit,
on the other hand, witnessed a decline of Rs.7,246 crore during 2006-07 (up to October 13, 2006) reflecting lower order of procurement of foodgrains.
Provisional information on sectoral deployment of bank credit indicates that growth in credit was broad-based. The y-o-y growth in credit to industry and agriculture was 27 per cent and 37 per cent, respectively, at end-June 2006 (Table 18). Retail lending rose by 47 per cent at end-June 2006, y-o-y, with growth in housing loans being 54 per cent. Loans to commercial real estate rose by 102 per cent.
In addition to bank credit, the corporate sector continued to rely on non-bank sources of funds for their financing requirements during the first half of 2006-07. Amounts raised through domestic equity issuances fell sharply during the second quarter of 2006-07 following the volatility in capital markets during May-June 2006; nonetheless, the amounts raised during the first half of 2006-07 were significantly higher. Mobilisation through equity issuances abroad (ADRs/ GDRs) during April-September 2006 was also higher than a year ago. Recourse to external debt flows in the form of external commercial borrowings (ECBs) was substantially higher during the first quarter of 2006-07 than a year ago. Mobilisation through issuances of commercial papers, after remaining subdued during the second half of the 2005-06, increased during the first half of 2006-07. Internal sources of funds provided large support – higher than each of the preceding four quarters – to the corporate sector during April-June 2006 as corporate profits recorded a substantial increase during the quarter (Table 19).
In the current fiscal year 2006-07 (up to October 13, 2006), commercial banks' investments in gilts have increased by Rs.41,796 crore, partly reflecting acceleration in deposit growth. However, as banks had liquidated their investments
Table 18: Deployment of Non-food Bank Credit |
||||||
(Amount in Rupees crore) |
||||||
Sector/Industry |
Outstanding |
Year-on-year variations |
||||
as on |
||||||
2005 |
2006 |
|||||
June 23, |
(June 24, 2005 over |
(June 23, 2006 over |
||||
2006 |
June 25, 2004) |
June 24, 2005) |
||||
Absolute |
Per cent |
Absolute |
Per cent |
|||
1 |
2 |
3 |
4 |
5 |
6 |
|
Non-food Gross Bank Credit (1 to 6) |
11,87,215 |
2,30,555 |
30.7 |
3,66,174 |
44.6 |
|
1. |
Agriculture and Allied Activities |
1,58,506 |
34,300 |
38.2 |
42,619 |
36.8 |
2. |
Industry (Small, Medium and Large) |
4,48,494 |
57,747 |
18.1 |
94,133 |
26.6 |
Small Scale Industries |
82,667 |
8,827 |
13.7 |
14,716 |
21.7 |
|
3. |
Services |
45,466 |
- |
- |
30,661 |
207.1 |
Transport Operators |
13,870 |
- |
- |
9,149 |
193.8 |
|
Professional and Others |
17,124 |
- |
- |
11,741 |
218.1 |
|
4. |
Personal Loans |
3,24,491 |
- |
- |
1,04,058 |
47.2 |
Housing |
1,71,917 |
- |
- |
60,495 |
54.3 |
|
(29,533) |
(50.1) |
|||||
Advances against Fixed Deposits |
29,286 |
-14,072 |
-56.8 |
5,471 |
23.0 |
|
Credit Cards |
6,818 |
- |
- |
4,539 |
199.2 |
|
Education |
9,781 |
- |
- |
5,684 |
138.7 |
|
Consumer Durables |
7,350 |
322 |
4.3 |
-113 |
-1.5 |
|
5. |
Trade |
70,679 |
- |
- |
29,104 |
70.0 |
6. |
Others |
1,39,579 |
- |
- |
65,599 |
88.7 |
Real Estate Loans |
23,633 |
6,275 |
94.6 |
11,957 |
102.4 |
|
Non-Banking Financial Companies |
24,933 |
3,094 |
18.5 |
7,787 |
45.4 |
|
Memo: |
||||||
Priority Sector |
4,57,689 |
1,05,035 |
39.4 |
1,13,962 |
33.2 |
|
Industry (Small, Medium and Large) |
4,48,494 |
57,747 |
18.1 |
94,133 |
26.6 |
|
Food Processing |
25,806 |
1,929 |
9.5 |
5,299 |
25.8 |
|
Textiles |
50,719 |
7,504 |
22.3 |
12,344 |
32.2 |
|
Paper and Paper Products |
7,517 |
844 |
14.7 |
1,394 |
22.8 |
|
Petroleum, Coal Products and Nuclear Fuels |
17,534 |
4,797 |
43.1 |
1,925 |
12.3 |
|
Chemical and Chemical Products |
36,089 |
1,755 |
6.0 |
6,954 |
23.9 |
|
Rubber, Plastic and their Products |
6,105 |
- |
- |
1,907 |
45.4 |
|
Iron and Steel |
41,811 |
5,780 |
22.3 |
12,208 |
41.2 |
|
Other Metal and Metal Products |
12,388 |
1,992 |
23.4 |
2,715 |
28.1 |
|
Engineering |
31,102 |
682 |
2.7 |
5,818 |
23.0 |
|
Vehicles, Vehicle Parts and Transport Equipments 12,066 |
2,863 |
45.1 |
2,992 |
33.0 |
||
Gems and Jewellery |
17,453 |
3,037 |
31.6 |
5,525 |
46.3 |
|
Construction |
12,234 |
1,860 |
28.0 |
4,571 |
59.7 |
|
Infrastructure |
89,946 |
18,940 |
33.2 |
19,859 |
28.3 |
|
- : Not available. |
in gilts in the second half of 2005-06, growth in their holdings of Government securities at 2.5 per cent, y-o-y, as on October 13, 2006 was lower than that of 5.9 per cent a year ago (Table 20). This growth is significantly lower than average growth of around 20 per cent per annum during 2002-2005. Commercial banks' holding of Government securities was 29.8 per cent of their net demand and time liabilities (NDTL) as on October 13, 2006 as compared with 31.3 per cent
Table 19: Select Sources of Funds to Industry |
||||||||||
(Rupees crore) |
||||||||||
2005-06 |
2005-06 |
2006-07 |
||||||||
Item |
(April-March) |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
|||
A. |
Bank Credit to Industry # |
1,22,165 |
11,148 |
28,061 |
24,484 |
58,472 |
-1,967 |
9,786 * |
||
B. |
Flow from Non-banks to Corporates |
|||||||||
1. |
Capital Issues (i+ii) |
13,781 |
1,264 |
2,758 |
5,549 |
4,210 |
10,627 |
1,882 |
||
i) |
Non-Government Public Ltd. |
|||||||||
Companies (a+b) |
13,408 |
1,264 |
2,758 |
5,549 |
3,837 |
10,627 |
1,882 |
|||
a) Bonds/Debentures |
245 |
118 |
0 |
0 |
127 |
0 |
0 |
|||
b) Shares |
13,163 |
1,146 |
2,758 |
5,549 |
3,710 |
10,627 |
1,882 |
|||
ii) |
PSUs and Government Companies |
373 |
0 |
0 |
0 |
373 |
0 |
0 |
||
2. |
ADR/GDR Issues |
7,704 |
789 |
739 |
3,643 |
2,533 |
4,965 |
2,130 |
||
3. |
External Commercial Borrowings (ECBs) |
40,496 |
4,326 |
12,989 |
9,132 |
14,049 |
18,747 |
- |
||
4. |
Issue of CPs |
-1,517 |
3562 |
1928 |
-2,491 |
-4,516 |
6,931 |
4,770 |
||
C. |
Depreciation Provision + |
28,883 |
7,137 |
7,617 |
7,748 |
8,340 |
8,449 |
- |
||
D. |
Profits after Tax + |
67,506 |
16,726 |
18,169 |
18,790 |
21,634 |
24,845 |
- |
||
# : Data pertain to select banks which account for over 90 per cent of bank credit of all scheduled commercial banks. |
at end-March 2006 and 34.7 per cent a year ago (Chart 14). Excess SLR investments of SCBs were Rs. 1,23,010 crore as on October 13, 2006 as compared with Rs. 2,07,903 crore a year ago. Raising funds through equity issuances in the
Table 20: Scheduled Commercial Banks' Survey |
|||||||
(Amount in Rupees crore) |
|||||||
Item |
Outstanding |
Variation (year-on-year) |
|||||
as on October |
|||||||
As on October 14, 2005 |
As on October 13, 2006 |
||||||
13, 2006 |
|||||||
Amount |
Per cent |
Amount |
Per |
cent |
|||
1 |
2 |
3 |
4 |
5 |
6 |
||
Sources of Funds |
|||||||
1. |
Aggregate Deposits |
22,94,293 |
2,98,229 |
18.6 |
3,93,849 |
20.7 |
|
2. |
Call/Term Funding from Financial Institutions |
84,039 |
13,121 |
20.0 |
5,226 |
6.6 |
|
3. |
Overseas Foreign Currency Borrowings |
30,430 |
7,877 |
32.2 |
-1,933 |
-6.0 |
|
4. |
Capital and Reserves |
1,93,141 |
33,161 |
25.9 |
31,790 |
19.7 |
|
Uses of Funds |
|||||||
1. |
Bank Credit |
16,43,720 |
2,99,151 |
30.8 |
3,72,342 |
29.3 |
|
of which: Non-food Credit |
16,10,275 |
2,97,903 |
31.8 |
3,76,105 |
30.5 |
||
2. |
Investments in Government Securities |
7,42,538 |
40,438 |
5.9 |
18,378 |
2.5 |
|
3. |
Investments in Other Approved Securities |
21,831 |
-2,352 |
-10.8 |
2,327 |
11.9 |
|
4. |
Investments in Non-SLR Securities |
1,49,174 |
-4,950 |
-3.4 |
10,040 |
7.2 |
|
5. |
Foreign Currency Assets |
39,896 |
-8,753 |
-24.7 |
13,179 |
49.3 |
|
6. |
Balances with the RBI |
1,25,080 |
29,562 |
35.0 |
11,151 |
9.8 |
|
Note : Data are provisional. |
primary market as well as internal reserves also helped banks to fund strong credit demand. Banks curtailed their overseas foreign currency borrowings while increasing their investments abroad in contrast to the trends of the previous year.
Reserve Money Survey
Reserve money growth at 20.4 per cent, y-o-y, as on October 20, 2006 was higher than that of 14.0 per cent a year ago (Chart 15). Growth of reserve money during 2006-07 so far has usually remained higher than a year ago. Intra-year movements in reserve money largely reflected the Reserve Bank’s market operations.
Growth of reserve money during 2006-07 (up to October 20, 2006) continued to be driven largely by expansion in the Reserve Bank’s net foreign assets (NFA). The Reserve Bank’s foreign currency assets (net of revaluation) have increased by Rs.42,544 crore during the fiscal year 2006-07 so far as compared with an increase of Rs.30,077 crore during the corresponding period of the previous year (Table 21 and Chart 16).
Mirroring the liquidity management operations, the Reserve Bank’s holdings of Government securities increased by Rs.491 crore during 2006-07 (up to October 20) as against a decline of Rs.175 crore in the corresponding period of 2005-06. During 2006-07 (up to October 20), there was a decline of Rs.14,670 crore in Central Government deposits with the Reserve Bank. The
Table 21: Variation in Reserve Money |
||||||||||
(Rupees crore) |
||||||||||
Variation during |
||||||||||
2005-06 |
2005-06 |
2006-07 |
2005-06 |
2006-07 |
||||||
(April- |
(up to |
(up to |
||||||||
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
Q2 |
|||||
March) |
Oct.21) |
Oct.20) |
||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Reserve Money |
83,930 |
23,320 |
43,884 |
7,177 |
1,062 |
25,440 |
50,251 |
14,533 |
18,551 |
|
(4.8) |
(7.7) |
|||||||||
Components (1+2+3) |
||||||||||
1. |
Currency in Circulation |
62,015 |
21,877 |
38,262 |
19,877 |
-9,479 |
29,154 |
22,462 |
23,349 |
-2,134 |
(5.9) |
(8.9) |
|||||||||
2. |
Bankers’ Deposits with RBI |
21,515 |
3,289 |
7,047 |
-10,680 |
9,780 |
-2,967 |
25,382 |
-7,204 |
20,224 |
3. |
‘Other’ Deposits with RBI |
401 |
-1,846 |
-1,425 |
-2,021 |
761 |
-747 |
2,408 |
-1,613 |
461 |
Sources (1+2+3+4-5) |
||||||||||
1. |
RBI’s net credit to Government |
26,111 |
-240 |
11,988 |
9,275 |
-25,251 |
19,879 |
22,208 |
53 |
2,826 |
of which: to Centre (i+ii+iii+iv-v) |
28417 |
5,073 |
15,029 |
14,600 |
-25,251 |
19,812 |
19,256 |
3,071 |
2,584 |
|
i. Loans and Advances |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
ii. Treasury Bills held by the RBI |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
iii. RBI’s Holdings of Dated Securities |
13,869 |
-175 |
491 |
8,221 |
-17,243 |
19,378 |
3,513 |
-27,610 |
24,944 |
|
iv. RBI’s Holdings of Rupee Coins |
7 |
116 |
-132 |
-40 |
-33 |
157 |
-77 |
9 |
-107 |
|
v. Central Government Deposits |
-14,541 |
-5,133 |
-14,670 |
-6,419 |
7,974 |
-277 |
-15,820 |
-30,672 |
22,253 |
|
2. |
RBI’s credit to banks and |
535 |
-1,325 |
-377 |
1,155 |
-1,869 |
101 |
1,148 |
-3,135 |
3,107 |
commercial sector |
||||||||||
3. |
NFEA of RBI |
60,193 |
25,475 |
77,310 |
-14,595 |
24,823 |
23,741 |
26,224 |
71,845 |
11,392 |
(4.2) |
(11.5) |
|||||||||
of which : FCA, adjusted for revaluation |
68,834 |
30,077 |
42,544 |
5,034 |
23,665 |
11,998 |
28,137 |
28,107 |
10,948 |
|
4. |
Governments’ Net Currency |
1,306 |
1,293 |
177 |
384 |
910 |
-100 |
112 |
146 |
31 |
Liabilities to the Public |
||||||||||
5. |
Net Non-Monetary liabilities of RBI |
4,215 |
1,884 |
45,214 |
-10,957 |
-2,449 |
18,180 |
-559 |
54,376 |
-1,194 |
Memo* : |
||||||||||
Net Domestic Assets |
23,737 |
-2,155 |
-33,426 |
21,771 |
-23,761 |
1,700 |
24,027 |
-57,313 |
7,158 |
|
Reserve Bank’s Primary |
10,000 |
0 |
0 |
0 |
0 |
0 |
10,000 |
0 |
0 |
|
Subscription to Dated Securities |
||||||||||
LAF, Repos (+) / Reverse Repos (-) |
12,080 |
3,350 |
8,730 |
9,660 |
-14,835 |
18,635 |
-1,380 |
-23,060 |
28,395 |
|
Net Open Market Sales # |
3,913 |
2,588 |
2,945 |
1,543 |
941 |
261 |
1168 |
1,536 |
1,176 |
|
Mobilisation under MSS $ |
-35,149 |
5,037 |
11,860 |
7,469 |
-4,353 |
-19,713 |
-18,552 |
4062 |
8,940 |
|
Net Purchases(+)/Sales(-) from |
32,884 |
17,027 |
21,545 @ |
0 |
17,027 |
0 |
15,857 |
21,545 |
0 @ |
|
Authorised Dealers |
||||||||||
NFEA/RM (per cent) (end-period) |
117.4 |
124.6 |
121.6 |
120.5 |
125.3 |
123.7 |
117.4 |
126.6 |
124.8 |
|
NFEA/Currency (per cent) (end-period) |
156.3 |
163.4 |
160.0 |
154.0 |
164.4 |
158.4 |
156.3 |
164.1 |
167.3 |
|
NFEA : Net Foreign Exchange Assets. FCA : Foreign Currency Assets. @ : up to end August 2006. |
Reserve Bank’s net credit to the Centre, therefore, increased by Rs.15,029 crore during the fiscal year 2006-07 (up to October 20) as compared with an increase of Rs.5,073 crore during the corresponding period of 2005-06 (see Table 21).
Liquidity Management
Liquidity conditions largely remained comfortable during the first half of 2006-07. During the first quarter, unwinding of the Centre's surplus balances with the Reserve Bank and the Reserve Bank's purchase of foreign exchange from authorised dealers led to increase in liquidity of the banking system, which was mirrored in the amounts accepted under LAF reverse repos. Liquidity conditions during the second quarter of 2006-07 continued to remain comfortable till mid-September notwithstanding some build-up of Centre's surplus balances with the Reserve Bank during August 2006. Consequently, the balances under LAF reverse repos witnessed some decline during the second quarter. Liquidity conditions turned tight from the second half of September 2006 on account of advance tax outflows and festival season currency demand amidst high credit off-take. During the second quarter, the Reserve Bank injected liquidity through repos on two occasions only (Rs. 275 crore on September 15, 2006 and Rs. 5,010 crore on September 29, 2006). During October 2006 (up to October 23), the Reserve Bank provided liquidity to some market participants through repos on four occasions (Rs. 35 crore on October 13, Rs. 1,000 crore on October 19, Rs. 1,585 crore on October 20 and Rs. 1,465 crore on October 23). However, there was net injection of liquidity through LAF only on October 20 and October 23, 2006. On an average, the Reserve Bank absorbed liquidity through net reverse repos to the extent of Rs. 36,857 crore during July-September 2006 as compared with Rs. 51,490 crore during the previous quarter. Liquidity is also being absorbed through the MSS,
Table 22: Phases of Reserve Bank's Liquidity Management Operations |
|||||||
(Rupees crore) |
|||||||
Variations during |
|||||||
Item |
2005-06 |
2006-07 |
|||||
(April-March) |
|||||||
Q1 |
Q2 |
July |
August |
September |
|||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
A. |
Drivers of Liquidity (1+2+3+4) |
-31,719 |
35,506 |
-15,837 |
1,290 |
-10,228 |
-6,900 |
1. |
RBI’s Foreign Currency Assets (adjusted for revaluation) |
68,834 |
28,517 |
10,538 |
2,942 |
2,958 |
4,638 |
2. |
Currency with the Public |
-57,280 |
-21,454 |
-89 |
1,713 |
-1,645 |
-156 |
3. |
Surplus Cash balances of the Centre with the Reserve Bank |
-22,726 |
40,206 |
-26,199 |
-149 |
-18,020 |
-8,030 |
4. |
Others (residual) |
-20,547 |
-11,762 |
-88 |
-3,216 |
6,481 |
-3,351 |
B. |
Management of Liquidity (5+6+7+8) |
57,969 |
-39,002 |
32,026 |
-7,265 |
16,871 |
22,421 |
5. |
Liquidity impact of LAF Repos |
12,080 |
-35,315 |
40,650 |
-1,590 |
20,170 |
22,070 |
6. |
Liquidity impact of OMO (Net) * |
10,740 |
545 |
145 |
25 |
70 |
50 |
7. |
Liquidity impact of MSS |
35,149 |
-4,232 |
-8,769 |
-5,700 |
-3,369 |
301 |
8. |
First round liquidity impact due to CRR change |
0 |
0 |
0 |
0 |
0 |
0 |
C. |
Bank Reserves (A+B) # |
26,250 |
-3,496 |
16,188 |
-5,975 |
6,643 |
15,521 |
(+) : Indicates injection of liquidity into the banking system. |
following the reintroduction of issuances under the MSS effective May 3, 2006 (Tables 22 and 23).
Table 23: Liquidity Management |
||||
(Rupees crore) |
||||
Outstanding as on |
LAF |
MSS |
Centre's Surplus |
Total (2 to 4) |
last Friday of |
with the RBI @ |
|||
1 |
2 |
3 |
4 |
5 |
2005 |
||||
January |
14,760 |
54,499 |
17,274 |
86,533 |
February |
26,575 |
60,835 |
15,357 |
102,767 |
March* |
19,330 |
64,211 |
26,102 |
109,643 |
April |
27,650 |
67,087 |
6,449 |
101,186 |
May |
33,120 |
69,016 |
7,974 |
110,110 |
June |
9,670 |
71,681 |
21,745 |
103,096 |
July |
18,895 |
68,765 |
16,093 |
103,753 |
August |
25,435 |
76,936 |
23,562 |
125,933 |
September |
24,505 |
67,328 |
34,073 |
125,906 |
October |
20,840 |
69,752 |
21,498 |
112,090 |
November |
3,685 |
64,332 |
33,302 |
101,319 |
December |
-27,755 |
46,112 |
45,855 |
64,212 |
2006 |
||||
January |
-20,555 |
37,280 |
39,080 |
55,805 |
February |
-12,715 |
31,958 |
37,013 |
56,256 |
March |
7,250 |
29,062 |
48,828 |
85,140 |
April |
47,805 |
24,276 |
5,611 |
77,692 |
May |
57,245 |
27,817 |
0 |
85,062 |
June |
42,565 |
33,295 |
8,621 |
84,481 |
July |
44,155 |
38,995 |
8,770 |
91,920 |
August |
23,985 |
42,364 |
26,791 |
93,140 |
September |
1,915 |
42,064 |
34,821 |
78,800 |
October $ |
-1,480 |
40,922 |
29,711 |
69,153 |
@ : Excludes minimum cash balances with the Reserve Bank. * : Data pertain to March 31. |
An analysis of the recourse by market participants to the second LAF vis-a-vis the first LAF shows that (i) recourse to second LAF was relatively small during the phase of liquidity injection between November 2005 and March 2006, and (ii) with the easing of liquidity conditions, there was a significant recourse to the second LAF during April-September 2006. The daily average absorption under the second LAF during the first quarter of 2006-07 at Rs. 26,860 crore exceeded that of Rs.24,631 crore in the first LAF. The daily average absorption under the second LAF during the second quarter of 2006-07 (Rs. 16,538 crore) remained large, albeit lower than the first LAF (Rs. 20,319 crore) (Chart 17 and Table 24).
Table 24: Dynamics of First and Second LAF |
|||||
(Amount in Rupees crore) |
|||||
Average daily LAF |
Average daily First |
Average daily |
Share of First |
Share of Second |
|
Operations (net) |
LAF Operations |
Second LAF |
LAF in Total |
LAF in Total |
|
(net) |
Operations (net) |
LAF (per cent) |
LAF (per cent) |
||
1 |
2 |
3 |
4 |
5 |
6 |
December 2005 |
-1,452 |
654 |
-2,106 |
64.6 |
35.4 |
January 2006 |
15,386 |
12,938 |
2,447 |
72.9 |
27.1 |
February 2006 |
13,532 |
10,850 |
2,682 |
74.9 |
25.1 |
March 2006@ |
6,319 |
5,520 |
799 |
54.1 |
45.9 |
April 2006 |
-46,088 |
-18,480 |
-27,608 |
41.1 |
58.9 |
May 2006 |
-59,505 |
-29,600 |
-29,905 |
49.7 |
50.3 |
June 2006 |
-48,611 |
-25,647 |
-22,964 |
52.8 |
47.2 |
July 2006 |
-48,027 |
-26,486 |
-21,541 |
55.2 |
44.9 |
August 2006 |
-36,326 |
-21,677 |
-14,649 |
59.7 |
40.3 |
September 2006 |
-25,862 |
-12,544 |
-13,318 |
47.8 |
52.2 |
@ : Additional LAF conducted on March 31, 2006 has been shown under second LAF. |
Reflecting the comfortable liquidity conditions, call rates generally remained close to the reverse repo rate during the first half of 2006-07 (Chart 18). During the second quarter of 2006-07, the call rates edged upwards from July 25, 2006 onwards in consonance with the increase of 25 basis points each in the reverse repo rate and the repo rate. Call rates edged higher in the second half of September 2006, as there was some moderation in surplus liquidity due to advance tax outflows and festival season currency demand. Call rates reached 7.38 per cent as on September 29, 2006 but eased to around 6.50 per cent in early October 2006. Call rates again edged higher in the third week of October 2006. Call rate was at 7.15 per cent on October 23, 2006.