RBI announces more measures to foster orderly market conditions
Aug 31, 2020
Mumbai (Maharashtra) [India], Aug 31 : The Reserve Bank of India (RBI) will conduct additional special open market operations involving the simultaneous purchase and sale of government securities for Rs 20,000 crore in two tranches of Rs 10,000 crore each.
The auctions will be conducted on September 10 and 17, the central bank said on Monday adding it remains committed to conduct further such operations as warranted by market conditions.
Besides, the RBI will conduct term repo operations for an aggregate amount of Rs one lakh crore at floating rates (that is at the prevailing repo rate) in mid-September to assuage pressures on the market on account of advance tax outflows.
"In order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity. Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent."
Currently, banks are required to maintain 18 per cent of their net demand and time liabilities (NDTL) in statutory liquidity ratio (SLR) securities. The extant limit for investments that can be held in held for trading (HTM) category is 25 per cent of total investment.
Banks are allowed to exceed this limit provided the excess is invested in SLR securities within an overall limit of 19.5 per cent of NDTL. SLR securities held in HTM category by major banks amount to around 17.3 per cent of NDTL at present.
However, there are inter-bank variations with some banks close to the 19.5 per cent of NDTL limit.
The RBI said it will allow banks to hold fresh acquisitions of SLR securities acquired from September 1 under HTM up to an overall limit of 22 per cent of NDTL up to March 31, 2021.
The central bank said it remains committed to using all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of Covid-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability.
