Bankers have suggested that the Reserve Bank of India lower the statutory liquidity ratio and the cash reserve ratio as the present liquidity crunch is affecting their business.

During the mid-term resource management discussion with the RBI team led by Deputy Governor Rakesh Mohan, the country's top bankers said the tight liquidity condition was pushing up the cost of funds and putting further pressure on margins.

This was the first meeting of bank chiefs with the RBI top management after the last week's developments in the US.

The bankers, including State Bank of India [Get Quote] Chairman O P Bhatt, ICICI Bank [Get Quote] Managing Director and CEO K V Kamath and HSBC India head Naina Lal Kidwai, told RBI that they were watching global developments with caution and were taking measures to face the situation. Sources present at the meeting said RBI only heard the bankers.

Liquidity has remained tight despite RBI's move last week to relax the SLR norm for banks in dire needs of funds. On Monday, call rates crossed the 15 per cent mark, though the weighted average rate was over 14 per cent (see table).

Banks have continuously used the repo route to raise over Rs 50,000 crore on a daily basis and beat the tight liquidity situation. Monday was no different with banks borrowing nearly Rs 79,000 crore during the two liquidity adjustment facility operations.

Since April, banks have been under pressure due to an increase in the repo rate and CRR by 125 basis points and 150 basis points, respectively. The moves were aimed at moderating credit growth and combating inflation. Repo rate is the rate at which RBI lends to banks, while CRR is the proportion of deposits that they have to keep with the central bank, without earning any interest.

Besides rising deposit rates across various maturities, raising short-term resources in the present environment and deploying them with a room to earn decent income has become a very tough task, the bankers told RBI. Despite RBI's moves to moderate credit growth to around 20 per cent, the rise has hovered in the range of 25 per cent.

With deposits increasing 22 per cent on a year-on-year basis, banks are finding it tougher to raise resources for credit deployment, a bank chief said.

"This is spilling over into the money markets. Going forward, this kind of a situation can lead to an asset-liability mismatch," he added.

While bankers said it was unclear how the central bank intended to use the inputs received on Monday, some market players were already predicting further steps from RBI.

In a research report, Citigroup said there would be unwinding of the Market Stabilisation Scheme bonds, where the outstanding is estimated at Rs 180,000 crore, in addition to a reduction in the SLR norm.

To improve the market discipline, RBI on Monday said banks and primary dealers must maintain sufficient funds with the central bank's current account to meet allotments of primary auctions of securities by 3 pm.

"It has been observed in the recent past that some of the entities are not meeting the fund requirements in time for smooth settlement of primary auction allotments," RBI said in a statement.