Ongoing changes in RBI Balance Sheet…(update – 9/Nov/2016)

Ever since the demonetisation on 8-Nov-2016, there were lots of discussions on the impact on RBI Bal Sheet. As liquidity surged via deposits, we first saw rise in reverse repo transactions.

Then, on 26 Nov 2016 RBI made changes in CRR policy where entire liquidity was mapped by CRR.

In a review of the current liquidity conditions after the withdrawal of legal tender status of ₹ 500/- and ₹ 1000/-…. it has been decided…. effective from the fortnight beginning November 26, 2016 an incremental CRR of 100 per cent on the increase in NDTL between September 16, 2016 and November 11, 2016. As the incremental CRR is a temporary measure, it shall be reviewed on December 9, 2016 or even earlier.

Just a few days later on 2 Dec 2016, RBI and Govt undid CRR bit and increased the ceiling of MSS from Rs 15000 cr to Rs 6 lakh crore. Now all liquidity would be mapped by issuing Cash Management Bills.

So in the recent monetary policy on 7 Dec, this incremental CRR measure was withdrawn. RBI’s liquidity management obviously reflects its totally chaotic policy in recent days.

These quick and random changes led to RBI balance sheet changing so much in few weeks which it saw in many decades. AS RBI’s weekly balance sheet data started flowing, we first saw decline in currency mainly adjusting via increase in reverse repo, which is recorded in Deposits – Others.

Later as CRR kicked in from 26 Nov 2016, we see volumes shifting from Deposit- Others to Deposits – Scheduled Commercial Banks. This is because CRR deposits are registered under the Deposits – Scheduled Commercial Banks.

(Rs Billion) Nov. 25 Dec. 2 Variation
1 Notes Issued 11642.69 10307.98 –1,334.71
1.1 Notes in Circulation 11642.37 10307.82 –1,334.55
1.2 Notes held in Banking Department 0.32 0.16 –0.16
2 Deposits
2.1 Central Government 153.89 200.08 46.19
2.2 Market Stabilisation Scheme
2.3 State Governments 0.42 0.42
2.4 Scheduled Commercial Banks 4172.89 8536.36 4363.47
2.5 Scheduled State Co-operative Banks 35.79 61.63 25.84
2.6 Other Banks 246.75 573.98 327.23
2.7 Others 6779.54 3341.21 –3,438.33
3 Other Liabilities 9672.21 9817.49 145.28
TOTAL LIABILITIES/ASSETS 32704.18 32839.15 134.97
1 Foreign Currency Assets 23592.59 23510.9 –81.69
2 Gold Coin and Bullion 1367.94 1369.35 1.41
3 Rupee Securities (including Treasury Bills) 7564.53 7742.5 177.97
4 Loans and Advances
4.1 Central Government
4.2 State Governments 14.21 –14.21
4.3 NABARD
4.4 Scheduled Commercial Banks 30.7 83.02 52.32
4.5 Scheduled State Co-op.Banks
4.6 Industrial Development Bank of India
4.7 Export- Import Bank of India
4.8 Others 28.67 34.94 6.27
5 Bills Purchased and Discounted
5.1 Commercial
5.2 Treasury
6 Investments 23.2 23.2
7 Other Assets 82.34 75.24 –7.10

 

  • As we can see currency in circulation continues to decline.
  • The adjustment shifts from Deposit-Others (which had reverse repo) to Deposit – Scheduled Commercial Banks,  Scheduled State Co-operative Banks and Other Banks.
  • Other Banks include Regional Rural Banks (RRBs), Other Scheduled Co-operative Bank, Non-Scheduled Commercial Banks, Other Cooperative Banks and Other Banks (including Central Co-operative Banks and primary co-operative banks).
  • This is obviously on account of incremental CRR which increased from 4,173.3 cr on Nov 27 to 9,049.7 Cr on Nov 28. CRR applies to Scheduled Commercial Banks/ Regional Rural Banks / all Scheduled Primary (Urban) Co-operative Banks / all Scheduled State Co-operative Banks.
  • So, we see all these categories together absorbing nearly 4.71 lakh crore of liquidity
  • AS CRR is removed from 9 Dec 2016 and MSS kicks in, we will see this amount shifting to Deposits – Market Stabilisation Scheme.

 

 

 

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