RBI may take more steps to ease cash crunch
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