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Reverse Repo at a high


A look at the reverse repo growth over the last few months is interesting:

The reverse repo level crossed 100K cr. every day in April – a typical spike time when new deposits are gathered. But it’s been staying up and the one month average is at an all time high.

Reverse repo is the money parked by banks with RBI, and yields 3.25%, even lesser than the standard savings account interest (3.5%). That means banks are choosing to lend to RBI at lower than they have to pay savings bank holders for the money. Is this typical?

What is interesting is that the last two spikes have come in pretty tough times – July 07 (Subprime crisis) and May 06 (market crash). Typically this means banks are reluctant to lend outside and prefer to keep money with the RBI for the shortest term possible. Business Standard says that new deposits have added 133K cr. to the banking system, but credit has contracted by 38 K crore. Which obviously means banks are reluctant to lend.

But why? I thought our economy is recovering and going back to a 10% growth rate or whatever. Someone forgot to tell the banks?


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