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RBI plans more measures to ease liquidity condition

26 Sep 2013 Evaluate

In order to ease tight liquidity situation ahead of the festival season, the Reserve Bank of India (RBI) plans to take measures such as bond purchases to support the flow of credit to productive sectors of the economy. Currently, central bank injects about Rs 1.5 lakh crore into the system daily through the liquidity adjustment facility (LAF), marginal standing facility (MSF) and the export credit refinance facility.

Inorder to restore adequate supply of money for credit flows, central bank has started a calibrated unwinding of exceptional steps taken since July. The RBI, has lowered the minimum maturity period for banks from three years to one year for the borrowings made on or before November 30, 2013 for the purpose of availing of the swap facility. However, foreign currency borrowing by banks beyond 50 percent of their tier I capital shall be of a minimum maturity of three years.

The RBI said that present liquidity tightening condition in the market is mainly due to the prospective effects of banks' half-yearly account closure, seasonal pick-up in credit demand, festival-related demand for currency and sluggish deposit growth. Liquidity has also tightened due to uncertainties about the government's borrowing programme for the second half of 2013-14. The government has revealed that it would borrow Rs 2.35 lakh crore from the market in the second half of the current fiscal of the total Rs 5.79 lakh crore projected in the Budget. The government borrowing stood at Rs 3.44 lakh crore in the first half of FY14.

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