Banks clamour for reverse repo dollar window

 The proposal envisages a reverse repo facility in dollars whereby banks can avail of dollars from the RBI against securities or similar collateral only to be returned after the contracted date.

 The tenure for the deal proposed is either very short-term like one or three days or it could be even 14 days.

 This will be similar to the repo facility available to the banks for availing rupees liquidity when needed or offloading excess liquidity at a rate fixed by the RBI.

 Repo or ready forward facility is as a tool for liquidity management in the system either by infusing or sucking out liquidity.

 Under this, banks lend money to the RBI at 4.5 per cent by pledging gilts for a certain number of days after which the deal expires or securities are exchanged. The rate of reverse repo, through which RBI infuses liquidity, is higher.

 Senior bankers said that the RBI is considering the proposal as dollars invested abroad are fetching low rate of interest.

 Since the rate for the reverse repo deal will be higher the central bank make give its nod to the proposal which can solve the problem of dollar shortage in the interbank market.

 Bankers also added that deployment of dollars in the interbank market under repos will not hamper the reserve maintenance norm prescribed by the International Monetary Fund (IMF).

 Under the IMF guidelines, reserves once lent for commercial purpose looses the status of being maintained as reserves.

 The RBI has not yet taken any formal decision on the proposal. Earlier, bankers had moved the RBI for extending dollar reserves for on-lending purpose as demand for dollar loans has been far exceeding the supply of dollars in the market.

 Although the dollar inflow has been high, since bulk of it has been booked in forward and invested in market, the cash market has been facing a shortage.

 However, this proposal did not find favour of the regulator as reserves could not be lent for commercial purpose as per the IMF reserve maintenance norm.