Short term borrowing to become more expensive for banks
By Neelima Shankar
Dec 7, 2009
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The cost of short term borrowing will become more expensive for banks in December due to concerns of liquidity tightening by RBI since banks seek to reduce the asset-liability mismatches ahead of the quarter end.

The CD (certificate of deposits) rates witnessed a surge after the data last week showed better than expected GDP results and as top policy makers and advisors warned against inflation.

"I expect CD rates to go up 10-15 basis points more in December, banks would raise more CDs to improve their quarterly balance sheet," said SK Chakraborty, treasurer at Allahabad Bank.

The unexpected GDP figures have triggered worries that RBI that has already started withdrawing the accommodative monetary policy, may soon suck out surplus liquidity that would lead to inflation.

Despite a slow growth in credit, bankers say their demand for short-term funds will continue as huge amounts of deposits accepted last year are due for redemption.

A few banks are planning to refinance short-term borrowings completed last year at around 7-8% with lower cost CDs now.

C Rangarajan, chairman of the PM'c Economic Advisory Committee said that High inflation would entail monetary action on liquidity and food prices must be controlled through supply side measures.


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