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Fixed Income

MSF Borrowing Goes Back Up, a Strange Repo Dip


Figures for the Marginal Standing Facility show that MSF borrowing has gone back up to 91,000 crores, a number larger than the 1% of NDTL (Total Deposits) that RBI is comfortable with. The actual limit is 2%, so we’re safe for now.

This could actually be why RBI decided to do another OMO purchase auction (where they purchase bonds from banks and give them rupees to add liquidity). This 10,000 cr. OMO (one of the largest OMOs ever) will be held on Friday and coincides with a government bond sale of 15,000 cr. 

Here’s the MSF Borrowing:

MSF Borrowing

The Dip in net repo is because Repo, yesterday, was just 37,000 crores, and there was actually 15,000 crores in reverse repo (banks placing money overnight with the RBI!).

Now let’s see this carefully – if some banks are keeping extra money with the RBI for about 6.5% when they could lend in the call money market for more than 9.5%? This doesn’t make a lot of sense, but it’s apparent the problem of liquidity isn’t system wide. Some banks have excess money, some are in real trouble. If thats the case, we’re closing in on an endgame – bank stress.

But then yesterday was September 30, many banks were not operational, and this might just be an aberration. Time will tell, but you’ve gotta be careful.


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