RBI Announces Steps to Ease Pressure On Liquidity

⦁ The Reserve Bank announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September to ease pressure on the liquidity and maintain congenial financial conditions with a view to ensuring sustainable recovery of economic growth.
⦁ As part of the measures to ‘foster orderly market conditions’, the RBI will conduct term repo operations for an aggregate amount of Rs 1,00,000 crore at floating rates (at the prevailing repo rate) in the middle of September to assuage pressures on the market on account of advance tax outflows.
⦁ The RBI said that in order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity.
⦁ Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent.
⦁ Further, the RBI will conduct additional special open market operation involving the simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each.
⦁ The auctions would be conducted on September 10, 2020, and September 17, 2020.
⦁ As part of the measures, the RBI has also decided to allow banks to hold fresh acquisitions of statutory liquidity ratio (SLR) securities acquired from September 1, 2020,
⦁ Under Held-To-Maturity (HTM) up to an overall limit of 22 per cent of net demand and time liabilities (NDTL) up to March 31, 2021 which shall be reviewed thereafter.
⦁ Currently, banks are required to maintain 18 per cent of their reserves in SLR securities.
⦁ The extant limit for investments that can be held in HTM category is 25 per cent of total investment.
⦁ Banks are allowed to exceed this limit provided the excess is invested in SLR securities within an overall limit of 19.5 per cent of NDTL.
⦁ SLR securities held in HTM category by major banks amount to around 17.3 per cent of NDTL at present.

Definition of ‘Statutory Liquidity Ratio’

Definition: The ratio of liquid assets to net demand and time liabilities (NDTL) is called statutory liquidity ratio (SLR).
Description: Apart from Cash Reserve Ratio (CRR), banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold and unencumbered securities. Treasury bills, dated securities issued under market borrowing programme and market stabilisation schemes (MSS), etc also form part of the SLR. Banks have to report to the RBI every alternate Friday their SLR maintenance, and pay penalties for failing to maintain SLR as mandated.