Government parks excess funds with RBI
By Vaibhav Aggarwal
Nov 6, 2009
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The government has parked idle funds worth Rs 61,343 crore in its account with the Reserve Bank of India. The idle money with RBI increased from Rs 12,837 crore in June 2009 to Rs 80,775 crore by end-September, and has stayed over Rs 60,000 crore since then.

In its recent policy review, the apex bank attributed the liquidity conditions in the second quarter to its surplus cash balances. A bond house dealer said that a lot of this money was in the form of advance tax inflows and ‘front loaded borrowings' by the government.

The government usually parks its idle funds with the central bank to maintain its Fiscal responsibility and Budget Management (FRBM) targets to keep the fiscal deficit at a pre-targeted level.

This time, however, the government seems to have parked such huge amounts to manage huge liquidity in the system. Banks alone have parked over Rs 100,000 crore with RBI under its liquidity adjustment facility.

An economist with a bond house said normally usually there is a seasonality in the surplus with RBI , the excess funds tend to grow around end of a quarter when advance tax flows grow.

As far as the market is concerned, the centre's blocking the funds by parking the surplus with the central bank would not impact the interest rates, as there is any way a huge surplus in the system.


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