Advance tax outflows worth Rs 80,000 - 90,000 crore, coupled with year-end pressures to shore up their books, forced banks to borrow up to Rs 94,250 crore from the Reserve Bank of India on the first day after the reporting Friday. Banks are always looking at strengthening their balance sheets during this time of the year by shoring up their deposits and credit figures.

This requires them to build up regulatory reserve requirements. Banks have to park a portion of the deposits they raise as cash with the central bank. As deposits gather pace, the cash requirements also go up, requiring them to raise funds from the market to meet the shortfall. Liquidity had begun to ease in the system after the government started spending, which is reflected in the government balances with RBI at minimum Rs 101 crore.

However, tight liquidity on account of advance tax outflows made it necessary for them to borrow from the Reserve Bank in repo by pledging securities. The traded volumes in the collateralised borrowing and lending obligation, or CBLO, market went up to Rs 66,633 crore from Rs 3,453 crore.

Volumes in the call market were up at Rs 16,292 crore, according to CCIL data. Bond yields also reacted to higher-than-expected inflation data. The most traded 8.08% G-sec 2022 closed at a yield of 8.10% from the previous close of 8.06% and the second most liquid paper 8.13% G-sec 2022 also closed at 8.10%. "Bond yields opened higher in the morning due to lower crude oil prices and expectations of a lower inflation data. But bond prices fell, after the figures came out," said Anoop Verma , assistant vice president at Development Corporation Bank .

He further said: "The tightness in liquidity could also put pressure on bond yields in a couple of days to come." Yields on certificates of deposits, or CD rates, have also come off as liquidity in the system has eased. "The spike in CD rates was more sentiment-driven and was not realistic. So the market is seeing some correction," said Kishwar, deputy general manager, treasury at Central Bank of India .

Ninety-day CD rates have come off to 9.65% and one year-CDs have come off to 9.96% from 10.31% a week ago. "Foreign banks have been making good arbitrage on the repo and CD rate differentials." A senior bank treasurer said, explaining the higher participation of foreign banks in subscribing to the certificate of deposits in the last one week at higher rates.