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Banks to get liquidity support to tide over Y2K-related demand

Reserve Bank of India has decided to introduce a ''special liquidity support'' for the period from December 1 to January 31, 2000, with a view to enable banks to meet any unanticipated additional demand for liquidity in the context of the century date change.

Announcing its mid-term Monetary and Credit Policy, the RBI said that the support scheme would enable the banks to avail additional liquidity from the RBI under section 17(4)(A) of the RBI Act 1934, to the extent of their excess holdings of dated government securities and treasury bills over the statutory liquidity ratio or SLR required to be maintained.

The rate of interest on this facility will be 2.5 percentage points over the bank rate.

This facility will be in addition to the collateralised lending facility and export credit refinance facility provided to all scheduled commercial banks.

Banks not holding significantly higher amounts of government securities beyond the SLR requirements, will be allowed by the RBI to have standby arrangement for liquidity support with those banks which are eligible for special liquidity support.

To facilitate banks to tide over the contingency during the millennium change, the RBI decided to treat cash-in-hand maintained by the banks for compliance of Cash Reserve Ratio or CRR for a limited period of two months commencing from December 1 to January 31.

The central bank clarified that the cash-in-hand which would be counted for CRR purposes during the above period can not be treated as eligible asset for SLR purposes.

However, RBI assured that any bank that expects a special problem in meeting its CRR obligations at the end of the year can approach the central bank for appropriate relaxation or assistance.

Even in case of the contingency plan for foreign banks, the RBI temporarily permitted the foreign banks to bring in head office funds and repatriate such funds during the period of two months ending January 31, 2000 without any restrictions.

ALSO SEE

RBI Governor Bimal Jalan's policy statement

RBI's Credit and Monetary Policy 1999-2000

RBI's Credit and Monetary Policy 1998-1999

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