Institutions have been borrowing over Rs 1.5 lakh crore daily via repo window.
The Reserve Bank of India (RBI) on Wednesday said banks could use their excess holdings under the statutory liquidity ratio (SLR) to borrow funds from the marginal standing facility (MSF). Currently, the MSF rate is 9.5 per cent.
"It has been decided to permit banks to avail of funds from RBI on an overnight basis, under the MSF, against their excess SLR holdings," the central bank said in a notification on Wednesday.
According to norms, banks must hold 24 per cent of net demand and time liabilities (NDTL) in the form of SLR. The MSF window was introduced in May to enable banks to borrow funds from RBI by dipping into the SLR pool up to an additional one per cent of NDTL.
RBI Governor D Subbarao had, in the annual monetary and credit policy announcement in May, said the MSF was an exceptional facility, and that banks were expected to exhaust the opportunities in the market repo and collateralised borrowings and lending obligations (CBLO) before accessing the MSF.
The call money rate rose on Tuesday, going past the MSF rate — the ceiling of the liquidity adjustment facility corridor. Banks that faced mismatches after RBI's repo auction borrowed at the call money rate, even after the overnight rate rose past 9.5 per cent. Data released by RBI showed banks had borrowed Rs 1,600 crore from the MSF window on Tuesday. This is the second time banks have accessed the additional facility since its introduction.
"Currently, banks have at least three-four per cent excess SLR, which would help these borrow funds from the MSF," said a senior official of a large public sector bank.
While bids for the repo auctions the central bank conducts daily are to be given between 9.30-10.30 am, the MSF window is open between 3.30-4.30 pm on all working days, except Saturdays.
On Wednesday, the call money rate ended at 9.65 per cent, after touching a high of 9.75 per cent. "This indicates certain banks must have availed of funds from the MSF window on Wednesday," said a treasury official of a public sector bank.
Owing to tight liquidity conditions after advance tax payments, banks have been borrowing above Rs 1.5 lakh crore daily from RBI's repo window at 8.5 per cent.
Earlier this month, RBI deputy governor Subir Gokarn had said the MSF window served as an early warning indicator of stress in liquidity and that the central bank watched it very closely.
