The Reserve Bank of India (RBI) on Thursday assured banks that it would inject adequate cash in view of the tight liquidity conditions in the market, which could further accentuate in March due to corporate advance tax outflow.
“With a view to addressing the expected tightening of liquidity conditions in March on account of advance tax payments by corporates and in order to provide flexibility to the banking system in its liquidity management towards March-end 2016, the Reserve Bank of India will inject adequate additional liquidity using a combination of appropriate instruments, while continuing with its normal Liquidity Adjustment Facility (LAF) operations,” RBI said on Thursday. It also said the tenor and magnitude of additional liquidity operations will be announced a few days in advance of each tranche.
In addition, the central bank eased the norms for liquidity coverage ratio (LCR) and has allowed banks to use 8 per cent of government securities they hold as compared to 5 per cent earlier, in their LCR computation.
Banks are allowed to borrow funds from the marginal standing facility window, the rate of which is 100 bps higher than repo rate, to meet LCR norms.
