Liquidity Crunch

MEPP Project

Liquidity Crunch

Submitted to Prof. S Chattopadhyay

Sreechand Nambiar

Shruti Bihani 2010224

Sumir Josan 2010234

Tanuraj Kulshreshtha 2010240

Anuj Goyal

Ashika Patel 2010270

“RBI: Continue to Monitor Liquidity in Banking System”‎

Wall Street Journal, 22nd Nov 2010

“Coal India IPO fetches mind-boggling Rs 2.36L crore”

TIMES OF INDIA, 22nd Oct 2010

“Government spending not enough”, says Subbarao

Business Standard, 9th Dec 2010

“Liquidity crunch to worsen on advance tax payment”‎

Business Standard, 14th Dec 2010

Liquidity in the banking system has dried up over the past few months. As a result banks are borrowing for their daily requirements from the RBI. It means that banks are borrowing for their daily requirements from the RBI. It is widely believed that the outflow of Rs 1 lakh crore from the banking system on account of 3G and BWA spectrum payments by corporates to the Government is the primary reason for the continuing liquidity deficit in the system. But, the Government on its part had already spent a major part of this money by the first week of September. So the money has been ploughed back in to the system, and cannot be the only reason for continuing tightening of liquidity in the system. Last but not the least, the Coal India Limited IPO and the festive season further tightened the liquidity in the banking system. The CIL IPO was worth Rs. 15,500 crore and was oversubscribed by 15 times to the tune of Rs. 2.36L crores. This led to further liquidity issues.

In reality, the liquidity crunch is driven strongly by three major factors that are beyond the central...