The Reserve Bank of India (RBI) today announced a reduction in banks' reserve requirements and a fresh injection of cash into the system in a bid to boost their cash position even as it kept all rates unchanged at the existing levels.
The central bank today announced a one percentage point reduction in the statutory liquidity ratio (SLR) of scheduled commercial banks to 24 per cent of their net demand and time liabilities (NDTL) from the existing 25 per cent, effective 18 December 2010.
RBI retained its repo rate at 6.25 per cent and the reverse repo rate at 5.25 per cent while it left the cash reserve ratio (CRR) of scheduled commercial banks unchanged at 6.0 per cent of their net demand and time liabilities (NDTL).
The central bank also announced a second auction for purchase of government securities next month, under its open market operation (OMO) to improve banks' liquidity.
RBI expects the reduction in SLR and open market purchase of bonds to inject Rs48,000 crore in fresh liquidity into the banking system on a permanent basis.
The additional support available for banks under RBI's liquidity adjustment facility (LAF) from 18 December 2010 to 28 January 2011 would now be one per cent of their NDTL against two per cent earlier since the SLR has been reduced by one percentage point on a permanent basis.