Reserve Bank of India (RBI) Deputy Governor HR Khan informed that the central bank was assessing whether the liquidity deficit in the banking system was temporary or structural.
As an evident of tightness in liquidity, banks borrow around Rs 95,075 crore through RBI’s daily liquidity adjustment facility and this is much higher than RBI’s comfort zone of +/-1 per cent of net demand and time liabilities (NDTL).
One of the reasons for the tightness in liquidity is the substantially high cash balance kept by government with the central bank.
So far this financial year, RBI has conducted just one OMO, held earlier this month — against the notified amount of Rs 10,000 crore, it bought Rs 9,658-crore government securities.
In the May 3 annual monetary policy review, RBI didn’t cut the cash reserve ratio, or CRR (the amount of funds banks have to keep with RBI as cash); currently, it stands at four per cent of banks’ NDTL. RBI had cut CRR by 75 basis points in 2012-13.
In a conference call early this month, RBI Governor D Subbarao had said RBI wanted to maintain the liquidity situation in the deficit mode, as this was consistent with RBI’s overall stance.