Bangalore: Bank’s borrowing from the Reserve Bank of India (RBI) has hit the record of 1,66,080 crore. RBI’s limit for the short term cash is 1 percent of the aggregate deposits, but this borrowed amount of bank is nearly 3 percent, which is lot more than RBI’s declaration.

Banks stated that the cash shortage is a result of cash drawn by the oil, fertilizer, and private sectors refiners. These companies were drawing money on working capital credit lines as there’s a hike in the oil price and feedstock prices.

This shortage was also partly due to cash drawn for state elections. Cash drawn is the aggregate deposits of banks contract. The outstanding deposit of the banks was 58.28 lakh crore in the end of December 2011. Now the outstanding deposit of the banks was 57.68 lakh crore as on 27th January 2012.

Corporation Bank’s, General Manager Treasury Rajaram Karanth says, “After the Rs 32,000 crore there has been no cash infusion by the RBI. That is the key reason for the cash shortage”, as quoted by MyDigitalFC.com.  After the infusion through the CRR reduction there has been only one open market operation that has infused 10,000 crore.

Most of the banks presently prefer to borrow directly from RBI instead of going through the call money markets or to the collateralized borrowing and lending obligations (CBLO), which provides a repurchase rate close to the RBI that is 8.5 percent. Clearing Corporation of India’s Senior Vice President (Fixed Income) Pradeep Naik said, “Banks have some surplus SLR securities. These are being used to borrow funds from the RBI.”

Since mid December 2011, rupee has appreciated by 8 percent against the dollar. This is another reason for the cash squeeze. It made the banks borrow more short term resources through bulk deposits, especially certificates of deposits. The cash deposit rate shot up by 10.1 percent which is 5 basis points more than one year deposits.

Banks states that RBI’s resistance to intervene in the banking system and increase the market operations was also largely by inflationary concerns. This year till now the money has grown by 14.4 percent, which is much low than the targeted rate. Karanth said, “We therefore think that there could be more rounds of Open Market operations. This will be essential to support upcoming government borrowings.”

Worried with rising bad loans, RBI has said that it will discuss the issue with banks soon. RBI Deputy Governor K. C. Chakrabarty said, “Stress sectors are well known, the issues which are there. But we don’t think there is a great concern as of now. But any how we are going to discuss (NPA issue) with the banks in the coming day. We are going to meet banks this month or first week of March”.