Banks to dip further into SLR to ease liquidity

RBI lets lenders use more from statutory liquidity reserves to meet LCR needs

Mumbai : In a bid to ease a liquidity squeeze afflicting the money markets, the Reserve Bank of India (RBI) on Thursday allowed banks to dip further into statutory cash reserves.

RBI said banks could ‘carve out’ up to 15 per cent of holdings under the statutory liquidity reserves to meet their liquidity coverage ratio (LCR) requirements as compared to 13 per cent now.

This resulted from a rise in the facility to avail funds for LCR to 13 per cent from 11 per cent, effective October 1, RBI said.

Statutory Liquidity Ratio is the reserve that Indian banks are required to maintain in the form of cash, gold reserves, and government approved securities before lending to customers. Liquidity Coverage Ratio, on the other hand, refers to highly liquid assets held by banks to meet their short-term obligations during acute stress scenarios.

Currently, Statutory Liquidity Ratio stands at 19.50 per cent of banks’ net demand and time liabilities.

According to the RBI, the move will enhance the ability of individual banks to avail of liquidity, if required, from the repo markets against high-quality collateral.

The move by the central bank follows concerns over tight liquidity conditions and banks’ unwillingness to lend to NBFCs.

RBI 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).

It further said that another OMO will be conducted on Thursday to ensure adequate liquidity in the system.

As of September 26, banks had availed of Rs 1.88 lakh crore through term repos from the Reserve Bank, the apex bank said.

“As a result of these steps, the system liquidity is in ample surplus,” it said.

RBI further announced the relaxation in statutory liquidity ratio (SLR) requirement with effect from October 1, 2018.

“This should supplement the ability of individual banks to avail of liquidity, if required, from the repo markets against high-quality collateral. This, in turn, will help improve the distribution of liquidity in the financial system as a whole,” it said.

Fund infusion into PSBs to be performance-based, says Fin Secy

New Delhi: The government is looking into the capital requirements of public sector banks, Financial Services Secretary Rajiv Kumar said on Thursday. “Capital infusion in banks will be performance-linked,” Kumar said.

At the annual review meeting of all public sector banks chaired by Finance Minister Arun Jaitley on Tuesday, banks asked the government to advance its recapitalisation programme.

“It is difficult to give a timeline for the recapitalisation plans as of now,” Kumar said. On Friday, the board of Central Bank of India will consider capital infusion of Rs 2,354 crore by the government. In July, the government announced infusion of Rs 11,337 crore in five banks through recapitalisation bonds. The funds were used to relieve pressure on the capital adequacy ratios of the banks and help them in coupon payment on bonds. After infusing Rs 88,100 crore in state banks in 2017-18, the government earmarked Rs 65,000 crore for capital infusion in 2018-19, under the Rs 2.11 lakh crore recapitalisation plan.

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