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The Reserve Bank of India (RBI) on Tuesday said the government’s high cash balances were resulting in liquidity tightness. “Government balance is substantial,” said Deputy Governor H R Khan. He added RBI was trying to assess whether the liquidity deficit was temporary or structural.
When asked whether RBI would conduct open market operations, he said: “We are assessing the situation…we will come out with something.”
Today, borrowings by banks under RBI’s daily liquidity adjustment facility window stood at Rs 95,075 crore, much higher than RBI’s comfort zone of +/-1 per cent of net demand and time liabilities (NDTL).
So far this financial year, RBI has conducted just one OMO, held earlier this month — against the notified amount of Rs 10,000 crore, it bought Rs 9,658-crore government securities.
In the May 3 annual monetary policy review, RBI didn’t cut the cash reserve ratio, or CRR (the amount of funds banks have to keep with RBI as cash); currently, it stands at four per cent of banks’ NDTL. RBI had cut CRR by 75 basis points in FY13.
In a conference call early this month, RBI Governor D Subbarao had said RBI wanted to maintain the liquidity situation in the deficit mode, as this was consistent with RBI’s overall stance. However, he had added through the last few months, borrowings had risen above +/-1 per cent of NDTL due to frictional and structural factors.
