RBI announces steps to ease pressure on liquidity and to maintain congenial financial conditions for the sustainable recovery of economic growth

The Reserve Bank of India (RBI) today announced a host of steps, including term repo operations totalling Rs 1 lakh crore in mid-September to ease pressure on the liquidity and maintain congenial financial conditions to ensure sustainable recovery of economic growth.

In a statement, the central bank said the RBI stands ready to conduct market operations as required through a variety of instruments to ensure orderly market functioning. It added that recently market sentiment has been impacted by concerns relating to the inflation outlook and the fiscal situation amidst global developments that have firmed up yields abroad.

The RBI said that 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. It thus further added that 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 central bank added that the last date for paying the second instalment of advance tax is September 15. Further, RBI said that it will conduct additional special open market operations involving the simultaneous purchase and sale of government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each. The auctions would be conducted on September 10, 2020, and September 17, 2020.

RBI said that it remains committed to conducting further such operations as warranted by market conditions. It said that as part of the measures, the RBI has also decided to allow banks to hold fresh acquisitions of statutory liquidity ratio (SLR) securities acquired from September 1, 2020, under Held-To-Maturity (HTM) up to an overall limit of 22 per cent of net demand and time liabilities (NDTL) up to March 31, 2021, which shall be reviewed thereafter.

Currently, banks are required to maintain 18 per cent of their reserves in SLR securities. The extant limit for investments that can be held in the HTM category is 25 per cent of total investment.

RBI in a release said, the RBI remains 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.