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Banks want to close year with a special LAF

Monday, 18 February 2013 - 8:56am IST | Place: Mumbai | Agency: DNA
RBI may again have to open a special repo window under its liquidity adjustment facility (LAF) on the last working day of the financial year, to ease the year-end pressure on banks.

The Reserve Bank of India (RBI) may again have to open a special repo window under its liquidity adjustment facility (LAF) on the last working day of the financial year, to ease the year-end pressure on banks.
Lenders are looking at a liquidity deficit of around Rs2 lakh crore at March-end.

“There are volatile flows in the last couple of days every financial year. Bankers have made representation to the RBI in this regard,” said the treasury head of a large public sector bank.

Last year, too, the RBI had allowed a special LAF on March 30. Repo borrowings had gone above Rs 2 lakh crore at the end of March 2012.
What makes the situation worse this year is that liquidity deficit is already trending above Rs 1 lakh crore despite the recent reduction in the cash reserve ratio.

The RBI also infused Rs 9,997 crore by purchasing bonds under open market operations on Friday. Banks, however, went on to borrow Rs 1.2 lakh crore via LAF on the same day.

To add to the woes, there are two public holidays in the last week of March. This means banks will only have three working days to cover their liquidity needs.

Bankers have requested the central bank for an additional repo window on Thursday and Saturday evenings.

Presently, the repo auction takes place in the morning and reverse repo in the evening. At the end of every reporting fortnight, there is a second repo auction conducted in the evening.

Given the tight liquidity conditions, bankers have also asked the RBI to consider reintroducing the 14-day repo auctions and the possibility of auctioning the government’s large cash balances.

@thtTALLgirl


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