At the same time, RBI took few measures to ease liquidity situation which is currently tight as the banking system is reeling under cash shortage due to the busy credit season and advance tax payments.
The apex bank has cut the statutory liquidity ratio (SLR) by 100 basis points or 1 per cent, which in turn is to release “sizeable” liquidity into the system. SLR is the amount that the banks are required to maintain with RBI in the form of liquid assets. Effectively, RBI has cut the SLR from 25 per cent to 24 per cent of NDTL (Net Demand and Time Liabilities) with effect from December 18, which is likely to affect the bond markets. Alongside the SLR cut, the central bank also decided to buy government securities from banks to the tune of Rs 48,000 crore in the next one month to inject more funds into the system.
RBI said these measures will alleviate liquidity pressure in line with the policy and reduce liquidity deficit close to RBI’s comfort zone. While these measures have helped stabilise overnight interest rates, the extent of deficit could constrain banks’ ability to expand their balance sheets commensurate with the productive needs of the economy.
Published 16 December 2010, 06:14 IST