SBI borrowing from RBI's emergency funding window - Times of India

The author has posted comments on this articleTNN | Sep 25, 2013, 05.43AM IST

Mumbai: Reserve Bank of India's measures to stem the rupee's decline have created such tight liquidity conditions that the country's largest lender State Bank of India has resorted to borrowings from the central bank's emergency funding window. Bank officials said that SBI has been repeatedly borrowing from RBI under the marginal standing facility window under which RBI lends overnight funds to banks against government securities at 9.75%.

"SBI has seen an increase in the cost of funds because of our borrowing from the MSF. We are forced to access the MSF because RBI has capped borrowing under its regular repo facility at half percent of our deposits which is around Rs 6000 to Rs 7000 crore" said Arundhati Bhattacharya, MD and CFO, SBI. The repo facility was meant to meet overnight liquidity mismatches faced by a bank. Last month RBI capped the borrowing under this facility at 0.5% of a bank's deposits. This was in a bid to push up short-term interest ra tes. Any bank that needs to borrow above this 0.5% limit would need to access the MSF window.

Traditionally, the MSF window was meant for only those banks which were in such a tight spot which faced a liquidity mismatch and did not have surplus government bonds to borrow against them. SBI holds surplus government bonds over the RBI requirement but has to access the MSF because its borrowing exceeds Rs 6000 crore.

Some bankers feel that SBI could be borrowing from the MSF also because yields on short-term treasury bills have shot past 11% and there is still an opportunity to make money by borrowing from RBI and investing it in short-term bonds. Ms Bhattacharya was explaining the bank's liquidity position in a press conference called by the bank to address issues raised rating agency Moody's which has recently downgraded the bank

"They have displayed lot of concerns on capital which is misplaced. The bank has sufficient capital to meet the Basel III norms. As country's champion bank we should be in a better position to raise capital from government and market." SBI controls one-fifth of the loans and deposit market and government has a controlling stake of 63%," Ms Bhattacharya said. She added that if the economy is in stress its would impact the asset quality of the bank. But the bank is lending only to better rated and investment grade rated companies as a risk mitigation strategy. The bank has sought Rs 4000 crore capital from government this year.

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