Banks flush with funds; interbank rates again take dip after September high

Sharesansar, November 17

With interbank rates and the yields on treasury bills at all time low, banks are finding ways to dispose surplus funds profitably like never before.

Meantime, the rate of 28-day treasury bills and 91-day treasury bills traded on Nov 11, 2014 — the major investment instrument for banks to manage short-term liquidity and earn returns — has also taken a dip to 0.0013 per cent and 0.2501 percent respectively.

These rates are supposed to guide the direction of interest rates in the whole financial sector of any country. However, here, banks are facing a difficult time following the movement of interbank rates and treasury bills’ discount rate — especially when they are going down.

Also, the weighted average interbank rate which shoots up to 1.4425 percent on Sept 30; again fall down to 0.1750 percent on Nov 14, 2014. This signals, the situation of liquidity surplus still prevails the same in the overall banking sector of the country.

Higher interbank rate points out the acute need of cash for banks and financial institutions and vice versa. Moreover, these rates are one of the guiding factors for interest rates. Interbank lending allows the needy ones to borrow and the ones with surplus cash to lend and earn interest — for the short term. If most of the financial institutions have enough cash to mobilize, it automatically goes down.