Banks can use balances under CRR to meet RTGS needs

The Reserve Bank of India (RBI) today said that banks could use balances maintained under the cash reserve ratio (CRR) instead of the intra-day liquidity (IDL) to be supplied by the central bank for meeting any eventuality arising out of the real time gross settlement (RTGS).

The RBI has fixed the IDL limit for banks to three times their net owned fund (NOF).

Speaking at a seminar organised by the Indian Banks' Association (IBA) and Logica in Mumbai today, Deepak Mohanty, advisor to the monetary policy department of RBI, said the central bank proposes to offer IDL to market players participating in RTGS.

However, the apex bank will also impose severe penalties if the IDL is not paid back at the end of the day.

The penalties may range from paying back the amount at rates in multiple of the bank rate or call rates to being debarred from the RTGS membership. He said that if any member has a negative NOF, the IDL limit will be decided on a case-to-case basis. IDL will be infused in the system in the form of intra-day repos to banks and primary dealers which are categorised as type A and B members, respectively. While members will draw IDL, they will place securities with the RBI as in case of repos.

The IDL will be charged at Rs 25 per transaction entered into by the bank on the RTGS platform. The marketable securities and treasury bills will have to be placed as collateral with a margin of five per cent.

These securities will be marked to market on a daily basis. This is to ensure that the variation margin could be called back from the participant as and when required.

At the end of the day, these securities will be purchased back by the certain bank and money will be returned to RBI. In case a bank is unable to extinguish the liability at the end of the day, it has to repurchase the securities within one-and-half hours before the commencement of the next RTGS transaction.

Even then, if any bank defaults, the amount could be withdrawn from the CRR balances and thus rendering the banks as a CRR defaulter. If such instances continue with certain banks, it will be discarded from the membership.