The Reserve Bank of India (RBI) has started withdrawing sector-specific refinance facilities and is developing a term money market for liquidity adjustment. In its second bi-monthly monetary Bi-Monthly Monetary Policy Statement for this financial year, RBI while slashing the credit refinance availability for banks to 32% of eligible export credit outstanding from 50% earlier, promised to compensate the gap with a special term repo facility. The banking regulator has offered a special term repo facility of 0.25% of net demand and time liability (NDTL) to smoothen the transition.
RBI’s move, which comes into effect immediately, is in line with the Urjit Patel panel's recommendation to move towards a more generalized provision of system liquidity without preferential access to any particular sector or entity.
Further, with this development, India’s Apex Bank expects to improve the access to liquidity from it for the system as a whole without the procedural formalities relating to documentary evidence, authorization and verification associated with export refinance. Additionally, it also expects to improve the transmission of policy impulses across the interest rate spectrum and engender efficiency in cash and treasury management.