RBI to buy an additional Rs 40,000 crore worth of G-secs in Dec

Stemming from the default of IL&FS in September, on various debt instruments including commercial papers, bonds and loans, the financial sector has been facing a liquidity crunch for the last eight to ten weeks.

The Reserve Bank of India (RBI) has announced it will buy an additional Rs 40,000 crore worth of Government securities (G-Secs) in December, in addition to the Rs 40,000 crore planned for purchase in November.

The last lot of G-Secs for this month will be purchased on November 29, under its Open Market Operations (OMO), for an aggregate amount of Rs 10,000 crore.

According to CARE Ratings, Rs 1.29 trillion of OMO purchases took place between April 1 and November 23, of which Rs 98,000 crore was purchased in the last three months.

The banking sector is facing its seventh consecutive week of liquidity deficit, says CARE Ratings, as the average net liquidity deficit widened by Rs 21,000 crore to Rs 1.11 trillion for the week ended November 23.

“Faced with a stressed liquidity position that has made fundraising from markets challenging, the NBFC sector has been increasingly turning to banks.

"Incremental credit offtake to the sector during April to September rose to 10.12 per cent, from -1.25 per cent during April to August 2018.

"The increased demand for funds by NBFCs has been impacting liquidity in the banking system,” says Madan Sabnavis, chief economist at CARE Ratings.

In FY2019, OMO purchases by the RBI closed at Rs 90,000 crore.

It has conducted Rs 1.29 trillion of OMO purchases this year, so far.

With the latest announcement, OMO purchases by December-end will cross Rs 1.5 trillion.

Stemming from the default of IL&FS in September, on various debt instruments including commercial papers (CP), bonds and loans, the financial sector has been facing a liquidity crunch for the last eight to ten weeks.

Further, asset-liability mismanagement issues in the housing finance companies and non-banking financial companies (NBFC) space further pushed concerns in the market of a liquidity shortfall.

Photograph: Shailesh Andrade/Reuters