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RBI allows banks to dip further into statutory liquidity reserves to ease liquidity

28 Sep 2018 Evaluate

In a bid to ease a liquidity squeeze in the money markets, the Reserve Bank of India (RBI) has allowed banks to dip further into statutory liquidity reserves. It said banks could 'carve out' up to 15% of holdings under the statutory liquidity reserves to meet their liquidity coverage ratio (LCR) requirements as compared to 13% now. It added that this resulted from a rise in the facility to avail funds for LCR to 13% from 11%, effective October 1.

The move by the central bank follows concerns over tight liquidity conditions and banks' unwillingness to lend to Non-Banking Financial Companies (NBFCs). The central bank said it stands ready to meet the durable liquidity requirements of the system through various available instruments depending on its dynamic assessment of the evolving liquidity and market conditions.

Citing proactive steps taken in the last few days, RBI said it conducted open market operation (OMO) on September 19 and provided a liberal infusion of liquidity through term repos in addition to the usual provision via the liquidity adjustment facility (LAF). In a bid to further infuse liquidity in the system, the RBI September 27, conducted Rs 10,000 crore OMO.

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