RBI infuses cash to ease liquidity


Even as the short-term interest rates continued to remain high in a tight money market, the Reserve Bank of India (RBI) on Friday initiated moves to ease the situation, allowing banks to temporarily hold a slightly smaller quantum of government securities than the mandated 25%. The central bank is also giving banks special access to liquidity windows for the next few days to "provide liquidity comfort arising out of frictional liquidity pressure."

Banks need to hold only 24% of their net demand and time liabilities in the form of the statutory liquidity ratio (SLR) for two days on October 30 and October 31 as a temporary measure. They can use the cushion to access the RBI's special liquidity window. Collectively, 1% of the net demand and time liabilities would amount to Rs 45,000 crore.

Among the measures initiated to ease liquidity, a special second liquidity adjustment facility (LAF) has been slated by the apex bank for two days on Friday and Monday. Further, a special two-day repo auction, under the LAF, will be conducted on Saturday. That apart, reverse-repurchase auctions will also be held on all three days to mop up any surplus.

Meanwhile, overnight borrowing rates surged to an intra-day of 12% on Friday, though they closed at 6.5%, slightly lower than Thursday's closing of 6.8%, with banks borrowing

Rs 1,31,260 crore from the RBI's first LAF window and Rs 350 crore from the second special window. Over the

past week, daily borrowings by banks have averaged

Rs 80,000 crore. Approximately, Rs 70,000 crore is estimated to have moved out of money market mutual fund schemes over the past month with banks withdrawing the bulk.

"There is some amount of uncertainty on the liquidity position which will become clearer once the money invested in the Coal India IPO is refunded to investors next week. However, at a fundamental level the market estimates the deficit to be around Rs 50,000 crore," said RVS Sridhar, president, global markets, Axis Bank.

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