RBI assures on liquidity amid 3G fund call

MUMBAI, INDIA: The Reserve Bank of India (RBI) will ensure adequate liquidity in the banking system, Deputy Governor K.C. Chakrabarty said on Wednesday, amid concerns cash could be tight in the coming week due to payments for 3G mobile spectrum.

Short-term interest rates have been rising on concerns that these payments, due by May 31, could create a temporary liquidity crunch.

The 3G mobile spectrum auction that ended last week will earn the government 677 billion rupees ($14.3 billion), nearly double what it had expected.

The fixing for the yield on the three-month Reuters Certificate of Deposit (CD) benchmark rose to 5.50 percent on Wednesday, its highest in more than two months, and bankers said it was likely to rise further.

The liquidity jitters were worsened when State Bank of India, the country's largest lender and a rare issuer of short-term debt, on Wednesday raised about 10 billion rupees via CDs.

Though an SBI source said the money was raised to meet a mismatch at a subsidiary, the timing of the move bolstered a view in the market that the bank was concerned liquidity could be tight in coming days.

However, SBI chairman O.P. Bhatt on Wednesday said there is adequate liquidity in the Indian banking system and said liquidity was unlikely to move into deficit due to the 3G payments.

However he added that the bank is seeing a 25-50 basis points upward revision in sub-BPLR (benchmark prime lending rate) loan rates due to the rise in short-term rates.

Indian telecommunications firms have raised at least 80 billion rupees via short-term paper, and additional cash via loans in the past few weeks to fund their 3G spectrum purchases.