RBI releases Rs1,17,660 crore into the system to ease liquidity pressure

The Reserve Bank of India (RBI) released a net Rs1,17,660 crore into the banking system today in two separate auctions in a bid to ease the liquidity friction and allow banks to cover their short-term demands.

The RBI today purchased government securities worth Rs1,31,260 crore in 79 bids and sold government bonds for a total Rs13,950 crore in four bids.

RBI also conducted a second repo auction under the special liquidity adjustment facility (SLAF) allowing banks to cover their short-term SLR requirements. RBI received 350 bids for sale of government bonds worth a total Rs350 crore, at 6 per cent cut off rate, the central bank said in a release today.

In order to provide liquidity comfort arising out of frictional liquidity pressure, RBI said, it would conduct another auction at 10.30 am on Saturday, 30 October and on Monday, 1 November, to inject further liquidity into the banking system.

Under the LAF facility, scheduled commercial banks can avail of additional liquidity support to the extent of up to one per cent of their net demand and time liabilities (NDTL) as of 8 October 2010.

"For any shortfall in maintenance of statutory liquidity ratio (SLR) on 30-31 October 2010 arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc, temporary measure," RBI said, adding, "This facility will be available only on Saturday 30 October 2010."

RBI said its liquidity adjustment facility (LAF) window has been in the deficit mode in the recent period. The inflow from the sale proceeds of government equity in PSUs seems to have helped to narrow the deficit.