RBI to provide liquidity comfort due to frictional pressure


New Delhi:The Reserve Bank of India (RBI) introduced measures to ease liquidity indicating tightness.The central bank opened a second liquidity adjustment facility (LAF) window and additional liquidity support under LAF up to 1 per cent of net demand and time liabilities. Both measures will be available up to December 16. As borrowing by banks exceeded Rs 1 lakh crore for a second day, RBI said the measures were announced “in order to provide liquidity comfort arising out of frictional liquidity pressure”. According To RBI, banks would not be penalised for any shortfall in statutory liquidity ratio between November 9 and December 16. Banks are required to invest 25 per cent of their net demand and time liabilities in government bonds and other approved securities under SLR. This is an "ad hoc, temporary measure",the central bank said. Inter-bank call money rates, which were at 7.40-7.50 per cent — higher than the repo rate of 6.25 percent — cooled to close at 6.7 percent after RBI’s measures. Net borrowing by banks, which was Rs 1.10 lakh crore from RBI’s first repo tender on Tuesday, came down to Rs 6,825 crore in the second LAF. "Liquidity is tight at the moment," said Deepak Parekh, chairman of HDFC. "It will start easing as money comes into the system. The tightness is only for some time," he added. Still, bankers say the current conditions reflect a mismatch in liquidity more than a cash crunch. "If one looks at investment by banks in government bonds in excess of minimum SLR requirements, it will not show there is a liquidity squeeze in the system," said a senior official at a large, state-run bank in Mumbai. "The true indicator of liquidity is borrowing in the call money market. The rates there have not flared up the way they surged to double digits on October 29," he added.