Banking System Grapples with Highest Liquidity Deficit Since February 28: TDS Payments and Excise Duty Strain

Call money traders have reported that the banking system is currently experiencing its most significant liquidity deficit since February 28, primarily attributed to the outflows related to tax deducted at source (TDS) payments and excise duty.

As of May 9, the liquidity deficit has reached a substantial amount of Rs 1.77 lakh crore, indicating a strain on the available funds within the banking system.

Despite the liquidity challenges, banks have maintained excess balances under the Cash Reserve Ratio (CRR) amounting to Rs 18,000 crore, potentially providing some buffer against the deficit.

In anticipation of the ongoing liquidity shortfall, traders are expecting the necessity for another variable rate repo auction, which could offer a mechanism to address the short-term liquidity needs of the banking system.

Amidst these circumstances, the 3-day call money rate is projected to remain within the range of 6.70% to 6.80%, reflecting the tight liquidity conditions and the market’s response to the deficit.