RBI to infuse Rs 1 lakh crore via term repo auction to boost liquidity

In a bid to provide additional liquidity to the system hit by the coronavirus pandemic, the Reserve Bank of India (RBI) on Monday said it will conduct Rs 1 lakh crore of term repo auction in the middle of September. It will also conduct additional special open market operations (OMO) of government securities worth Rs 20,000 crore in two tranches.

The central bank will conduct term repo operations for Rs 100,000 crore at floating rates (at the prevailing repo rate) in the middle of September to ease pressure on the market on account of advance tax outflows, it said. The apex bank said that it will notify details separately.

"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," the RBI said in a notification.

Besides, the RBI will conduct additional special open market operation involving the simultaneous purchase and sale of government securities for Rs 20,000 crore in two tranches of Rs 10,000 crore each. The auctions would be conducted on September 10 and September 17, 2020, says RBI, adding that it remains committed to conduct further such operations as warranted by market conditions.

"The RBI stands ready to conduct market operations as required through a variety of instruments so as to ensure orderly market functioning," it said.

Among others, the central bank has reduced the requirement of holding HTM (held-to-maturity) category bonds in the SLR (statutory liquidity ratio) securities for the banks to 22 per cent from the existing 25 per cent. SLR is the minimum proportion of deposits that banks have to invest in government securities. Currently, banks are required to maintain 18 per cent of their net demand and time liabilities (NDTL) in SLR securities.

"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. However, there are inter-bank variations with some banks close to the 19.5 per cent of NDTL limit. Accordingly, it has been decided to allow banks to hold fresh acquisitions of SLR securities acquired from September 1, 2020 under HTM up to an overall limit of 22 per cent of NDTL up to March 31, 2021 which shall be reviewed thereafter," it said.

The RBI said that it remained committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of COVID-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability.

By Chitranjan Kumar

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