RBI
puts further curbs on banks to tighten liquidity
SPECIAL CORRESPONDENT CHENNAI, July
22, 2013
Banks told to maintain a
minimum daily balance of 99 per cent of cash reserve ratio requirement, up from
70 per cent now.
Unrelenting in its efforts to quell speculation in the foreign
exchange market, the Reserve Bank of India (RBI), on Tuesday, imposed further
curbs on banks with a view to draining liquidity from the system.
The central bank has told banks to necessarily maintain a
minimum daily balance of 99 per cent of the CRR (cash reserve ratio)
requirement, up from 70 per cent currently.
The RBI has also prescribed individual limits for banks to
access the Liquidity Adjustment Facility (LAF), a monetary policy tool. LAF
allows banks to borrow money from the RBI by selling their securities through
repurchase agreements. LAF is mainly intended to help banks adjust any mismatch
in daily liquidity.
Further fine-tuning its policy change in this regard announced
on July 15, the RBI has said that each bank would be allowed access to LAF up
to 0.5 per cent of its own net demand and time liabilities (NDTL) outstanding
on the last Friday of the reporting cycle two weeks prior to the current one.
On July 15, the RBI said that the overall allocation of funds
under the LAF would be limited to 1.0 per cent of the NDTL of the banking
system, reckoned to be around Rs. 75,000 crore. Allocations to individual
banks, however, were made in proportion to their bids, subject to the overall
ceiling.
Coming just a week after the RBI raised the short-term borrowing
rates for banks to 10.25 per cent, the twin measures on Tuesday evening are
bound to have repercussions on the cost of funds.
Though banks have guardedly restrained themselves from
increasing the lending rates, the latest RBI action will put fresh pressures on
banks. Already, the bench-mark 10-year bond yield has risen following increase
in short-term borrowing rates. The latest measures, sources, said would make
borrowers edgy, and push up borrowing costs for the government as well.
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