Banks have conveyed their concerns about persistently high overnight rates and liquidity conditions to the Reserve Bank of India (RBI) to ensure a more equitable access to funding and shrink the widening gap between the benchmark policy and overnight rates.
Lenders and other participants in money markets had held discussions that highlighted the changing nature of liquidity distribution in the banking system wherein some entities could access funds only at elevated rates.
Indian banks have urged the Reserve Bank of India (RBI) to find a more even-handed way to distribute liquidity and narrow the gap between overnight rates and the benchmark policy rate. Due to 24/7 banking, banks have held on to cash at the RBI’s Standing Deposit Facility (SDF), increasing the call rate in the call money market, where banks can make overnight financing arrangements. For around a month, the weighted average call rate (WACR) has been around 25 basis points higher than the benchmark policy repo rate, which is currently at 6.50%. The WACR peaked at 6.78% on 15 June.