RBI takes measure to ensure fund availability on all Saturdays

MUMBAI: The Reserve Bank of India has taken measure to ensure fund availability on all Saturdays as the removal of export credit refinancing facility resulted in spikes in short term rates due to cash shortage in the banking system on February 7.

The central bank will now conduct marginal standing facility, a borrowing window, effective from February 21.

"MSF operations conducted on Saturdays will ordinarily be for a tenor of two days with reversal on the following Monday," RBI said in a release issued on Friday. "In case Monday is an RTGS holiday, the reversal will take place on the next RTGS working day."

Under MSF, banks can borrow at 8.75% by pledging surplus government bonds in excess of statutory liquidity ratio (SLR) set at 21.5%. SLR is the portion of total deposits that lenders are mandated to invest in government securities.

Two weeks ago ET reported that banks including the State Bank of India and others had sought an additional window for borrowing from RBI every Saturday after short-term rates surged.

The collateral borrowing and lending obligation, or CBLO, rate had on February 7 zoomed 76% and the inter-bank call-money rate shot up to 25% from the 8-9% earlier. In the CBLO market, short-term credit is given against government securities.

Earlier, banks could borrow funds through the export refinancing window at the repo rate, or the rate at which RBI lends short-term money to banks, subject to 12% of outstanding export credit. RBI withdrew the facility in its February 3 monetary policy.

Besides, corporates pay excise duty and services tax on 7th of every month. This in turn, intensifies liquidity stress in the banking system.

"Banks were expecting similar liquidity stress on March 7 (Saturday) as well. This is a huge relief for them," said a bond trader from a large primary dealership.

The Reserve Bank has also introduced the reverse repo window on all Saturday days. Banks park surplus short-term funds at 6.75% with RBI under reverse repo.

"As a further measure to facilitate smoother operations under the revised Liquidity Management Framework announced on August 22…RBI has decided to conduct Reverse Repo and Marginal Standing Facility operations on all Saturdays," RBI said.

The timings of the operations will be between 2.00 p.m. and 2.30 p.m.