Technical glitch halts RBI's liquidity management system: Explained
New Delhi, June 12, 2024
This is the first glitch experienced by the ASISO system in four years since its installment by the RBI
A technical issue disrupted the Reserve Bank of India’s (RBI) banking system on Tuesday, incapacitating the mechanism that enables lenders to manage their daily liquidity needs, according to a report by Reuters. This marked the first significant failure since the system was established nearly four years ago.
The RBI, which releases its money market operation statement around 9.00 am every morning, detailing the banking system's liquidity position, had not done so even at 10.45 am on Wednesday.
What was the technical glitch?
Indian banks are mandated to deposit 4.5 per cent of their net deposits with the central bank and must maintain at least 90 per cent of this requirement daily. The marginal standing facility (MSF) provides an avenue for banks to access funds from the central bank in times of liquidity shortfalls.
The automated sweep-in and sweep-out system (ASISO), which facilitates banks in parking funds at the RBI’s standing deposit facility and borrowing from its marginal standing facility (MSF), experienced a malfunction. As a result, transactions meant to debit or credit funds through the RBI were not processed.
The technical glitch stopped the ASISO facility in e-kuber, that gets automatically triggered around midnight, from going through, Reuters stated.
What is the ASISO system?
The automated sweep-in and sweep-out or ASISO system is a vital component of liquidity management for banks in India. The system automates the process of managing the liquidity of banks.
It was introduced in 2020 in response to the disruptions caused by Covid-19 and to optimise human resource deployment by providing eligible participants greater flexibility in managing their end-of-day cash reserve ratio (CRR) balances.
Participants can set or modify their end-of-day current account balance limits on all real-time gross settlement (RTGS) working days between 9 am and 11.30 pm. These limits can be specified as maximum and minimum balances (in Rupees crore) linked to liquidity adjustment facility (LAF) and MSF operations.
ASISO system enables banks to:
Park excess funds: Deposit surplus funds in the RBI’s standing deposit facility.
Borrow funds: Access funds through the MSF when liquidity is low.
How does the ASISO system work?
The ASISO follows a ‘sweep-in’ and ‘sweep out’ system, this means:
Sweep-in: Transfers excess funds from the bank’s account to the RBI’s facilities at the end of the day.
Sweep-out: Returns funds to the bank’s account from the RBI’s facilities as needed for the next day’s operations.
What does the ASISO system affect?
The ASISO system impacts three main components:
1. Liquidity management: Ensures banks efficiently manage liquidity, maintaining required reserves and accessing funds as needed.
2. Daily operations: Facilitates smooth daily banking operations by automating fund transfers.
3. Regulatory compliance: Assists banks in complying with the RBI’s liquidity requirements.
End-of-day operations on ASISO system
If a bank’s current account balance falls below the set minimum balance, the system will auto-trigger an MSF bid for the difference, rounded up to Rs 1 crore. If there are insufficient securities in the bank’s Repo constituent account, the MSF bid amount will be reduced accordingly.
If a bank’s current account balance exceeds the set maximum balance, the system will auto-trigger a Reverse Repo bid for the difference, rounded down to Rs 1 crore.
No bids will be triggered if the current account balance is within the specified range.
These limits remain in force unless modified and apply every day, including Sundays and RTGS holidays. Participants can disable the ASISO facility at any time before 11.30 pm on any RTGS working day if they choose not to use it.
What is the impact of an ASISO system failure?
Banks faced disruptions in their daily operations as funds were neither debited or credited. Additionally, since banks were not able to complete their end-of-day operations, there is potential non-compliance with the RBI’s liquidity requirements, which could lead to penalties.
The lack of liquidity data publication can also cause uncertainty in the financial markets.
[The Business Standard]
