GOVERNMENT OF INDIA
Ministry of Finance
DEPARTMENT OF FINANCIAL SERVICES 

RAJYASABHA
UNSTARRED QUESTION NO.4251
TO BE ANSWERED ON THE MAY 15, 2012 / VAISAKHA 25, 1934 (SAKA)
Liquidity Crunch at Banks
QUESTION

4251. SHRI RAJEEV CHANDRASEKHAR: 

Will the Minister of FINANCE be pleased to state:

(a)   whether it is a fact that most of the banks in the country are facing a liquidity crunch even after the RBI cutting CRR;

(b)   if, so the details thereof; and

(c)    the remedial measures taken or proposed to be taken by the RBI and Government in this regard? 

ANSWER
The Minister of State in the Ministry of Finance
(Shri Namo Narain Meena)

(c): RBI has informed that they have been constantly monitoring the situation and has initiated prompt corrective action from time to time. RBI has taken the following measures to manage banking system liquidity:-

(i)     RBI has ensured that adequate liquidity is injected on a daily basis by accepting all bids on the LAF window (RBI can use discretion in terms of the amount of injection under daily (LAF).  RBI has taken care of the liquidity stress arising from advance tax outflows. For instance, with a view to providing flexibility to SCBs in their liquidity management, the Reserve Bank conducted additional repo operations under LAF on December 16, 2011. Similarly, additional repo operations under LAF were conducted on March 30 and March 31, 2012.

(ii)   RBI began to inject durable liquidity in the system, through outright open market operation (OMO) purchases effective from November 24, 2011. An amount of around Rs.1, 29,252 crore has been injected under OMOs during this year so far (till March 30, 2012).

(iii) RBI decided on December 21, 2011 to permit banks to avail funds on overnight basis, under the Marginal Standing Facility (MSF) against their excess SLR holdings, in addition to the existing facility where they are already allowed to avail themselves of funds, up to one per cent of their respective net demand and time liabilities (NDTL).

(iv)  The Cash Reserve Ratio (CRR) was reduced by 50 bps with effect from January 28, 2012 and further by another 75 bps with effect from March 10, 2012, thereby injecting primary liquidity to the extent of Rs. 80,000 crore.

(v)    In response to suggestions from some of the market participants and with a view to providing flexibility to market participants in their liquidity management, it was decided to re­introduce additional Repo under LAF (Second LAF Repo) on reporting Fridays, with effect from February 10, 2012.

RBI has informed that they have always proactively managed the evolving liquidity conditions effectively, by meeting the liquidity needs in the system.