RBI may take more steps to ease cash crunch

The Pak Banker - - Company& -

NEW DELHI: The Re­serve Bank of In­dia (RBI) will take more steps if needed to ease a liq­uid­ity crunch in the bank­ing sys­tem which may in­clude cut­ting len­ders' cash re­serve re­quire­ment, two se­nior of­fi­cials said Tues­day.

"They [the cen­tral bank] can use any in­stru­ment re­quired if the sit­u­a­tion war­rants," C. Ran­gara­jan, chair­man of the Prime Min­is­ter's Eco­nomic Ad­vi­sory Coun­cil, told re­porters on the side­lines of an eco­nomic sum­mit.

The cash re­serve ra­tio, or the per­cent­age of de­posits that banks must keep aside with the cen­tral bank, is cur­rently 6%.

Liq­uid­ity in the sys­tem has been tight since mid-Septem­ber af­ter com­pa­nies with­drew cash to make ad­vance tax pay­ments. A spate of ini­tial share sales by com­pa­nies in­clud­ing Coal In­dia Ltd. and the ab­sence of ad­e­quate govern­ment spend­ing has wors­ened the sit­u­a­tion.

The Re­serve Bank of In­dia late Mon­day ex­tended the sec­ond daily liq­uid­ity ad­just­ment fa­cil­ity auc­tion, which was set to ex­pire on Dec. 16, to Jan. 28. It also low­ered a bond-hold­ing rule, al­low­ing banks to bor­row cash up to 2% of their net de­posits from the RBI un­til Jan. 28. Mr. Ran­gara­jan said also that since banks have been bor­row­ing from the RBI con­tin­u­ously, it in­di­cates that there is a need for more liq­uid­ity.

Banks have bor­rowed more than 1 tril­lion rup­pes ($21.74 bil­lion) daily on av­er­age from the cen­tral bank's liq­uid­ity win­dow since Nov. 8.

Sep­a­rately, Fi­nance Sec­re­tary Ashok Chawla said the RBI would keep tak­ing liq­uid­ity-eas­ing steps as and when nec­es­sary.

"The RBI is ab­so­lutely alive to [the] liq­uid­ity sit­u­a­tion. As and when there is a tem­po­rary blip on [the] liq­uid­ity front, they will bring out what­ever in­stru­ment, ac­tion they need to take," he said. -PB News

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