RBI to inject adequate additional liquidity to support banks

RBI to inject adequate additional liquidity to support banks

  • February 17, 2016  
  • |  
  • UPDATED   11:59 IST

The Reserve Bank will go for "a combination of appropriate instruments" for adequate additional liquidity infusion to address the likely tightening of cash conditions in March due to advance tax payments by corporates.

"... the Reserve Bank of India will inject adequate additional liquidity using a combination of appropriate instruments while continuing with its normal liquidity adjustment facility (LAF) operations," the central bank said while announcing liquidity measures for March 2016.

This, the RBI said, will be done with a view to addressing the "expected tightening of liquidity conditions" next month on account of advance tax payments by corporates and in order to provide flexibility to the banking system in its liquidity management towards March-end 2016.

Based on a continuous assessment of the evolving liquidity scenario, the tenor and magnitude of additional liquidity will be announced a few days in advance of each tranche.

RBI further said that as a special case, stand-alone primary dealers will be allowed to participate, along with other eligible participants, in four regular term repo auctions to be conducted during the fortnight starting from March 19, 2016 within the usual notified amount.

RBI has also notified that banks will be allowed to reckon government securities held by them up to another 3 per cent of their net demand and time liabilities (NDTL) under the facility to avail liquidity for liquidity coverage ratio (FALLCR).

"Hence, the total carve-out from SLR (statutory liquidity ratio) available to banks would be 10 per cent of their NDTL. For this purpose, banks should continue to value such reckoned government securities within the mandatory SLR requirement at an amount no greater than their current market value," RBI said.