The Reserve Bank of India (RBI) On Tuesday extended the tenure for two refinance facilities, including one to provide support to mutual funds and finance companies, for banks by three months to September 2009, though the use of both windows remains minimal.
Soon after the collapse of Lehman Brothers in the US in September, the global financial market freezed and liquidity dried up from the markets. The effects were also seen India.
The central bank had opened refinance windows to ensure that mutual funds and non-banking finance companies (NBFCs) in India get adequate resource support to meet redemption pressure and are able to conduct normal operations. Later, the housing finance companies were also allowed to use this facility
Now, there is adequate liquidity in the system and funds are available due to a slew of steps, including a 400-basis-point cut in the cash reserve ratio. The actions of the Reserve Bank since mid-September 2008 have resulted in an augmentation of actual/potential liquidity of over Rs 3,88,000 crore.
A senior Bank of Baroda official said that currently there was no demand from mutual funds as they do not face redemption pressure. In the early part of the third quarter (October), MFs were facing liquidity problems due to a sudden rise in redemptions, immediately after the collapse of Lehman Brothers.
Under the first refinance facility, RBI provides assistance through repo window up to Rs 60,000 crore on an outstanding basis. Banks can avail additional liquidity support of up to 1.5 per cent of their net deposit liabilities only for lending to MFs, HFC and finance companies. Banks can still use eligible securities worth Rs 59,170 crore to draw funds under refinance facility, indicating very low usage of facility.
The central bank had opened refinance windows to ensure that mutual funds and non-banking finance companies (NBFCs) in India get adequate resource support to meet redemption pressure and are able to conduct normal operations. Later, the housing finance companies were also allowed to use this facility
Now, there is adequate liquidity in the system and funds are available due to a slew of steps, including a 400-basis-point cut in the cash reserve ratio. The actions of the Reserve Bank since mid-September 2008 have resulted in an augmentation of actual/potential liquidity of over Rs 3,88,000 crore.
A senior Bank of Baroda official said that currently there was no demand from mutual funds as they do not face redemption pressure. In the early part of the third quarter (October), MFs were facing liquidity problems due to a sudden rise in redemptions, immediately after the collapse of Lehman Brothers.
Under the first refinance facility, RBI provides assistance through repo window up to Rs 60,000 crore on an outstanding basis. Banks can avail additional liquidity support of up to 1.5 per cent of their net deposit liabilities only for lending to MFs, HFC and finance companies. Banks can still use eligible securities worth Rs 59,170 crore to draw funds under refinance facility, indicating very low usage of facility.
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