RBI allows liquidity reversal for banks on weekends, holidays from Dec 30
New Delhi, Dec 8, 2023
The Reserve Bank of India (RBI) governor Shaktikanta Das said that the move will come into effect on December 30
The Reserve Bank of India (RBI) on Friday announced that banks are allowed to reverse their liquidity through standing deposit facility and marginal standing facility, even on weekends and market holidays.
RBI Governor Shaktikanta Das said that the move will come into effect on December 30.
Governor Das, in his monetary policy announcement, said, "We propose to allow reversal of liquidity facilities under both standing deposit facility (SDF) and marginal standing facility (MSF) even during weekends and holidays with effect from December 30, 2023."
Das said that this is to facilitate better fund management by banks. "The measure to be reviewed after six months," he added.
The move comes after Das highlighted skewed liquidity distribution among banks in his October monetary policy statement. He had asked banks to deploy their excess funds in the inter-bank call money market rather than parking it in the RBI's standing deposit facility.
The SDF allows banks to deposit their liquidity with the RBI at a 6.25 per cent rate. "We have noticed high utilisation of MSF and SDF by banks... We have decided to allow reversal of liquidity facilities under both SDF and MSF even on weekends. It is expected that this will facilitate better fund management."
An SDF is an overnight deposit facility that allows banks to park excess liquidity (money) and earn interest. The MSF is a window for banks to borrow from the RBI in an emergency situation when inter-bank liquidity dries up completely.
Das said, "Deficit liquidity conditions persisted during October and November prompting large recourse to the MSF by banks. In parallel, utilisation of the SDF has also been high. The overall tightening of liquidity conditions is attributed mainly to higher currency leakage during the festive season, government cash balances and Reserve Bank's market operations."
[The Business Standard]
