MUMBAI: Indian cash rates were firm on Tuesday as banks borrowed more with liquidity remaining tight, and outflows related to government borrowing seen further weighing on the cash position.
At 11:44 a.m. (0614 GMT), the one-day cash rate was at 8.70/75 percent, marginally higher than Monday's close of 8.60/70 percent.
"Banks are covering position because of the deficit in the liquidity situation. Yesterday, there was a 140 billion rupees ($2.7 billion) outflow due to debt sale," a trader with a private bank said.
"On Friday there is another auction, and there will be outflows because of state loan auctions as well this week," he said.
Banks borrowed 1.12 trillion rupees from the Reserve Bank of India's repo counter, up from 1.1 trillion rupees on Friday, indicating the shortfall in funds.
Traders estimated service tax payments took away about 100 billion to 110 billion rupees from the banking system in the last few days.
Ten Indian states will raise a total of 91.67 billion rupees via 10-year state development loans on Tuesday.
On Friday, the federal government will auction 140 billion rupees of debt, including a new 8-year bond.
Call money market volume was 140.36 billion rupees, compared with Monday's total of 157.37 billion rupees, data from the Clearing Corp of India showed.
In the collateralised borrowing and lending obligation (CBLO) market, volume was 158.27 billion rupees against a total of 374.79 billion rupees on Monday.
The weighted average rate in the call money market was 8.71 percent, higher than 8.67 percent on Monday. In the CBLO market, the average rate was 8.54 percent, up from 8.52 percent in the previous session.
In the inter-bank repo market, the volume was 102.75 billion rupees, compared with Monday's total of 116.92 billion. The weighted average rate was 8.64 percent from 8.59 percent.
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