Call Money Rate Stays Below 5.50% Repo as RBI Drains Liquidity: What It Means for Bank Stocks

The call money rate, what banks charge each other for unsecured overnight loans, is still below the RBI’s 5.50% repo rate a week after the policy hike, even though the central bank is pulling cash out almost every day. RBI’s latest money market operations release shows a weighted average call rate of 5.34% on Tuesday, October 13. For bank investors, that gap shows how quickly the October hike will feed into deposit and loan pricing.

Where the call money rate stands after the hike

On October 7 the Monetary Policy Committee lifted the repo rate by 25 basis points to 5.50% and shifted its stance to “calibrated tightening”, as the MPC resolution spells out. That puts the floor of the corridor, the standing deposit facility (SDF) rate, at 5.25%, and the ceiling, the marginal standing facility (MSF) rate, at 5.75%.

Overnight rates have climbed inside that band, but they haven’t touched the repo rate yet. RBI data show the weighted average call rate at 5.31% on October 9, 5.41% on October 12 and 5.34% on October 13. Business Standard, quoting Clearing Corporation of India data, had Monday’s rate at 5.43%, up 12 basis points from October 9. By our calculation, the October 13 call rate was 16 basis points under the repo rate and 9 basis points above the SDF floor.

The liquidity numbers from RBI’s operations

• Net absorption: counting outstanding and same-day operations, RBI absorbed a net ₹3,35,925.90 crore (roughly ₹3.36 lakh crore) on October 13.
• Overnight VRRR demand: on October 13, banks put ₹71,580 crore into a 1-day variable rate reverse repo where ₹1,50,000 crore was on offer. On October 14 they took up just ₹25,533 crore against ₹50,000 crore. Both auctions cut off at 5.49%.
• SDF parking: ₹1,37,826 crore was parked in the SDF on October 13, against ₹2,06,081 crore on October 12.
• OMO sale: RBI sold all ₹25,000 crore of government bonds it offered on October 13, at cut-off yields between 7.1428% and 7.3947%.
• T-bills: at the October 14 auction, the 91-day bill cleared at 5.7281%, the 182-day at 6.2896% and the 364-day at 6.4891%, according to RBI.

A release dated October 14 announces another ₹50,000 crore overnight VRRR for Thursday, October 15, with the money coming back on October 16.

Why RBI wants this cash out of the system

Business Standard traced the surplus to large FCNR(B) deposit inflows. The last net durable liquidity figure RBI published showed a ₹13,93,819 crore surplus as of September 15. That much spare cash blunts a rate hike. Banks don’t feel much need to raise deposit rates, and short-term market rates stay low. “Rate hikes amid an extreme liquidity surplus can weaken monetary policy transmission,” Mataprasad Pandey of Choice Wealth told the paper.

Friday brings the next squeeze. An RBI notification dated October 9 requires banks, from the fortnight starting October 16, to hold at least 99% of their required cash reserve ratio (CRR) balance every day, up from 90%. So banks can’t run their RBI balances down as far and lend out the difference overnight. We looked at how the CRR and OMO moves hit bank shares on October 12 in Nifty Bank decline after RBI’s CRR move.

How this plays into bank stocks

Wednesday was mixed for bank shares. NSE data show Nifty Bank ended October 14 at 55,316, down 0.3%. Nifty Private Bank slipped 0.58% and Nifty PSU Bank gained 0.26%.

As the experts Business Standard spoke to put it, plenty of cash takes the pressure off banks to raise deposit rates. As RBI mops it up and overnight rates drift toward 5.50%, short-term funding costs more and the hike shows up in deposit and loan rates sooner. We’d keep an eye on three things: the daily call rate against 5.50%, bids at RBI’s VRRR auctions, and the first few days under the 99% CRR rule. For each session’s wider picture, see our Stock Market Today India hub, and for the bond-auction side read Bank Nifty after the RBI OMO sale.