New Delhi November 30:
To ease the cash crunch in the financial system, RBI allowed banks to maintain lower investment level in government bonds.
The move to lower the statutory liquidity ratio (SLR) by 2 percentage points to 23% comes in the wake of banks tapping the RBI window to borrow around Rs 1 lakh crore daily in November. Banks tapped RBI to raise around Rs 80,000 crore, though the overnight rate in the inter-bank call money market rose to a high of 6.9%.
In a press release issued this evening, RBI said that it will conduct a second liquidity adjustment facility (LAF) auction till January 28, something it has been doing for the past few weeks to ensure that banks have enough cash to meet their lending requirements.
Under LAF, banks can borrow from RBI or park surplus cash. For the past few months, banks have resorted to borrowing at the prevailing repo rate 6.25% due to tight liquidity scenario. According to RBI's SLR norms, banks have to keep 25% of their liabilities in government securities and have to pay penalty for falling below the prescribed level. RBI, however, said that it will not levy any penalty for banks keeping 23% of their liabilities in SLR.
The move, market players said, was partly due to the prevailing tight liquidity situation and partly due to an expectation of further pressure in coming weeks as demand for loans picks up in December to meet quarterly targets. In addition, several share sales lined up by the government will suck out cash. The liquidity pressure has also not forced the government to alter its borrowing programme for the year. On Monday, RBI announced auction of government securities worth Rs 10,000 crore, which is in line with the borrowing schedule.
To ease the cash crunch in the financial system, RBI allowed banks to maintain lower investment level in government bonds.
The move to lower the statutory liquidity ratio (SLR) by 2 percentage points to 23% comes in the wake of banks tapping the RBI window to borrow around Rs 1 lakh crore daily in November. Banks tapped RBI to raise around Rs 80,000 crore, though the overnight rate in the inter-bank call money market rose to a high of 6.9%.
In a press release issued this evening, RBI said that it will conduct a second liquidity adjustment facility (LAF) auction till January 28, something it has been doing for the past few weeks to ensure that banks have enough cash to meet their lending requirements.
Under LAF, banks can borrow from RBI or park surplus cash. For the past few months, banks have resorted to borrowing at the prevailing repo rate 6.25% due to tight liquidity scenario. According to RBI's SLR norms, banks have to keep 25% of their liabilities in government securities and have to pay penalty for falling below the prescribed level. RBI, however, said that it will not levy any penalty for banks keeping 23% of their liabilities in SLR.
The move, market players said, was partly due to the prevailing tight liquidity situation and partly due to an expectation of further pressure in coming weeks as demand for loans picks up in December to meet quarterly targets. In addition, several share sales lined up by the government will suck out cash. The liquidity pressure has also not forced the government to alter its borrowing programme for the year. On Monday, RBI announced auction of government securities worth Rs 10,000 crore, which is in line with the borrowing schedule.
