RBI's new norms can bring more efficiency in a bank's liquidity management

Doing away with assured liquidity for the banking system, as proposed by an internal group of the Reserve Bank of India (RBI), can bring more efficiency in a bank’s liquidity management.

In the current framework, the RBI assures liquidity of up to 1 per cent of the deposit base — 0.25 per cent for individual banks and 0.75 per cent for the overall system.

Now the framework is proposing that system liquidity should ideally be kept in deficit mode of 0.25-0.50 per cent of the deposit base.
 

It is important to mention here is that banking system liquidity is highly