Cash to get scarce in coming days

Cash in the money market is likely to get even more scarce in the coming days. Banks will now have to place an additional part of deposits with the RBI starting July 19, when the revised norms on cash reserve requirements come into force. This is at a time, when banks have been borrowing close to Rs 30,000 crore from the Reserve Bank of India (RBI) on a daily basis. The RBI hiked the cash reserve ratio (proportion of deposits which banks have to park with RBI as cash) to 8.75% in June, besides making it costlier for banks to borrow from its daily cash window. As a result, funds worth almost Rs 16,000 crore would be seen moving out of the banking system. Starting next week, banks have to park Rs 8.75 for every Rs 100 worth of deposit they gather. That apart, banks have to pay 8.5% to the central bank as interest on their daily borrowings from RBI’s cash window, thus making it costlier for them to manage their cash flows. While the CRR hike itself will take out Rs 8,000 crore from the system next week, RBI would also be issuing bonds worth Rs 10,000 crore, bring cash conditions under further pressure