Inter-bank call rates eased by a hefty 575 basis points on Monday, as liquidity returned to the credit markets. Consequently, there was a 35.24% drop in the demand for loans from the repo window of RBI by banks, who borrowed only Rs 59,575 crore against an average of Rs 92,000 crore till Friday.
To help banks further, RBI on Monday night allowed them to take up trading positions in the interest rate futures market, even if they had no risks to hedge. In a bid to make accounting of derivative losses transparent, RBI also made it mandatory for banks to classify outstanding derivatives of over 90 days as bad loans. The other measures included an advisory to banks to release pre-sanctioned credit to all clients and restructure debt to small & medium enterprises. Finance minister P Chidambaram imparted a feeling of comfort to the financial community by issuing a statement before the markets opened in the morning, saying the government would shortly announce more measures, including issuing advisories to banks to "infuse liquidity into the system, make credit intermediation smoother and increase the confidence of depositors and investors." Responding to the cues, share prices bounced back from last week's lows as governments across the world intensified their efforts to tide over the credit crisis. The BSE Sensex made its biggest gain in more than four years, shooting up by 7.6%, or 804.38 points, to 11,332.23. The benchmark index had plunged 16% last week as the world money markets went into a tailspin with the financial crisis spreading to Europe despite simultaneous rate cuts by central banks across the globe. The rupee also rose by 0.4% to close at 48.26 to a dollar. Among the biggest gainers was ICICI Bank, which rose after its chief executive officer KV Kamath said the bank has sufficient liquidity. ICICI Bank rose 17% to Rs 425.15 on Monday. The bank's shares fell by a record 20% on October 10. State Bank of India also gained 11%. HDFC Bank also gained 12% to Rs 1,173.05. On Sunday night, speaking at an IMF meet, RBI governor D Subbarao hinted at a rate cut saying Indian industry was now solely dependent on domestic credit as international credit markets had "frozen". On Monday, the chief of Prime Minister's Economic Advisory Council, Suresh Tendulkar, echoed the sentiment, when he said, "At this juncture, there was a possibility of a rate cut as well as a reduction in cash reserve ratio". A panel headed by finance secretary Arun Ramanathan met in New Delhi in the evening to suggest ways to ease the liquidity crunch and discussed options like a cut in CRR, reduction in statutory liquidity ratio-the percentage of deposits banks have to investment in government securities-and relaxation in the external commercial borrowings rules. The panel will meet again in Mumbai on Wednesday and submit its recommendation to the government in a week. "We have shared thoughts on what are the requirements. We need to address the liquidity demand," Ramanathan said without elaborating on what transpired in the two-hour meeting. Sources present in the meeting said that apart from usual options to inject liquidity-such as CRR, SLR, rate cut-the panel also discussed some innovative ways to ease the liquidity situation. The details of these new measures were not immediately available. "More steps are required and more steps are forthcoming from RBI," a source said, hinting at further swift action from the central bank. The finance minister said the problems in the capital, money and forex markets "can be overcome if adequate liquidity is infused into the system." Chidambaram said Rs 60,000 crore of liquidity has already been injected into the banking system by CRR cuts and banks have accessed Rs 91,500 crore as on October 10 from RBI's liquidity adjustment facility. On the NSE, the S&P CNX Nifty rose 210.75, or 6.4%, to 3,490.70. The BSE 200 Index added 7.2% to 1,343.57. Inter-bank call rates eased by a hefty 575 basis points on Monday, as liquidity returned to the credit markets. Consequently, there was a 35.24% drop in the demand for loans from the repo window of RBI by banks, who borrowed only Rs 59,575 crore against an average of Rs 92,000 crore till Friday. To help banks further, RBI on Monday night allowed them to take up trading positions in the interest rate futures market, even if they had no risks to hedge. In a bid to make accounting of derivative losses transparent, RBI also made it mandatory for banks to classify outstanding derivatives of over 90 days as bad loans. The other measures included an advisory to banks to release pre-sanctioned credit to all clients and restructure debt to small & medium enterprises. Finance minister P Chidambaram imparted a feeling of comfort to the financial community by issuing a statement before the markets opened in the morning, saying the government would shortly announce more measures, including issuing advisories to banks to "infuse liquidity into the system, make credit intermediation smoother and increase the confidence of depositors and investors." Responding to the cues, share prices bounced back from last week's lows as governments across the world intensified their efforts to tide over the credit crisis. The BSE Sensex made its biggest gain in more than four years, shooting up by 7.6%, or 804.38 points, to 11,332.23. The benchmark index had plunged 16% last week as the world money markets went into a tailspin with the financial crisis spreading to Europe despite simultaneous rate cuts by central banks across the globe. The rupee also rose by 0.4% to close at 48.26 to a dollar. Among the biggest gainers was ICICI Bank, which rose after its chief executive officer KV Kamath said the bank has sufficient liquidity. ICICI Bank rose 17% to Rs 425.15 on Monday. The bank's shares fell by a record 20% on October 10. State Bank of India also gained 11%. HDFC Bank also gained 12% to Rs 1,173.05. On Sunday night, speaking at an IMF meet, RBI governor D Subbarao hinted at a rate cut saying Indian industry was now solely dependent on domestic credit as international credit markets had "frozen". On Monday, the chief of Prime Minister's Economic Advisory Council, Suresh Tendulkar, echoed the sentiment, when he said, "At this juncture, there was a possibility of a rate cut as well as a reduction in cash reserve ratio". A panel headed by finance secretary Arun Ramanathan met in New Delhi in the evening to suggest ways to ease the liquidity crunch and discussed options like a cut in CRR, reduction in statutory liquidity ratio-the percentage of deposits banks have to investment in government securities-and relaxation in the external commercial borrowings rules. The panel will meet again in Mumbai on Wednesday and submit its recommendation to the government in a week. "We have shared thoughts on what are the requirements. We need to address the liquidity demand," Ramanathan said without elaborating on what transpired in the two-hour meeting. Sources present in the meeting said that apart from usual options to inject liquidity-such as CRR, SLR, rate cut-the panel also discussed some innovative ways to ease the liquidity situation. The details of these new measures were not immediately available. "More steps are required and more steps are forthcoming from RBI," a source said, hinting at further swift action from the central bank. The finance minister said the problems in the capital, money and forex markets "can be overcome if adequate liquidity is infused into the system." Chidambaram said Rs 60,000 crore of liquidity has already been injected into the banking system by CRR cuts and banks have accessed Rs 91,500 crore as on October 10 from RBI's liquidity adjustment facility. On the NSE, the S&P CNX Nifty rose 210.75, or 6.4%, to 3,490.70. The BSE 200 Index added 7.2% to 1,343.57. http://www.financialexpress.com/news/Call%20rates%20plummet%20as%20banks%20regain%20confidence%20to%20lend/373046/ The law of gravity says no fair jumping up without coming back down --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
