RBI eases borrowing norms to ease liquidity crunch

MUMBAI: In order to ease the liquidity situation, the Reserve Bank of India today allowed banks to borrow additional amount from it under the Marginal Standing Facility (MSF), a new lending window which was opened by the central bank in the current fiscal.

"It has been decided to permit banks to avail themselves of funds from RBI on overnight basis, under MSF, against their excess Statutory Liquidity Ratio ( SLR) holdings," the Reserve Bank said in a circular.

MSF is the rate at which banks can borrow overnight from RBI. SLR refers to the amount which the banks are mandatorily required to invest in government securities. At present, the banks SLR is 24 per cent.

RBI also said that banks can borrow funds on overnight basis below the stipulated SLR, upto one per cent of their deposits.

It further said that banks will not be required to seek waiver for default in SLR compliance.

There is liquidity problem in the system following payment of third installment of the advance taxes by the corporates and other assesses. The last date for payment of advance tax was December 15.

Besides, the companies and traders will have to garner resources for payment of service tax. The last date for payment of half-yearly service tax is on December 26.

The RBI had opened the MSF window to allow banks to borrow money from central bank from May 9.

The central bank in its mid-quarter credit policy announced earlier in the month had refrained from tinkering with the key rates and ratios despite the demand from the industry to lower the Cash Reserve Ratio (CRR), the amount which the banks are required to park with the central bank in cash. The CRR is current 6 per cent.