The Reserve Bank of India Governor Duvuri Subbarao will meet Prime Minister Manmohan Singh this evening to discuss the liquidity crunch in India and steps being taken to address it.
“RBI Governor has returned to Mumbai. The Governor is scheduled to meet the Prime Minister later this evening,” Finance Minister P Chidambaram said in a statement here. Subbarao was in Washington to attend the annual general meeting of the International Monetary Fund and the World Bank.
After consultation with Securities and Exchange Board of India this morning, RBI has announced a special 14 day repo, a facility for banks to borrow from the central bank, to commercial banks at 9 per cent for Rs 20,000 crore in order to enable the banks to meet the liquidity requirements of mutual funds.
“Government welcomes this announcement,” Chidambaram said. Government has been informed by the mutual fund industry that against their borrowing from the banks they will give as security, mainly, Certificate of Deposits of the banks themselves, he added.
The US and the European capital markets closed on a strong note last night while the East Asian markets have opened on a bright note this morning. It appears that the measures announced by various governments and central banks have not only infused greater liquidity into the markets but also helped restore confidence to a significant degree, Chidambaram said.
“I hope that the same sense of optimism and confidence will be visible in the Indian markets too,” he said.
Last night, it was brought to the notice of the government that some mutual funds faced some stress in liquidity in meeting redemption requirements in respect of debt instruments and money market instruments.
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Indian Banks Association is in touch with the banks as well as the mutual fund industry to decide on an appropriate rate at which the banks will on-lend to the mutual funds, he added.