RBI Announces Measures to Foster Orderly Market Conditions
The Reserve Bank of India has announced the following measures to ensure the orderly functioning of financial markets in India (weakened due to COVID-19):
- Additional special open market operation of Rs 20,000 crore: The Reserve Bank will conduct additional special open market operation involving the simultaneous purchase and sale of Government securities for an aggregate amount of Rs. 20,000 crore in two tranches of Rs. 10,000 crore each.
- Term repo operations for an aggregate amount of Rs. 100,000 crore: The Reserve Bank will conduct term repo operations for an aggregate amount of ₹100,000 crore at floating rates (i.e., at the prevailing repo rate) in the middle of September 2020 to assuage pressures on the market on account of advance tax outflows. The banks which had availed of funds under the previous long-term repo operations (LTROs) may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent.
- Increase of HTM up to an overall limit of 22 per cent of NDTL: Currently, banks are required to maintain 18 per cent of their net demand and time liabilities (NDTL) in SLR securities. The extant limit for investments that can be held in HTM category is 25 per cent of total investment. Banks are allowed to exceed this limit provided the excess is invested in SLR securities within an overall limit of 19.5 per cent of NDTL. RBI has decided to allow banks to hold fresh acquisitions of SLR securities acquired from September 1, 2020 under HTM up to an overall limit of 22 per cent of NDTL up to March 31, 2021.
Points to remember:
- As announced by RBI in August 2020 end, it will carry out Additional special open market operation of what amount?- Rs 20,000 Crore
- As announced by RBI in August 2020 end, it will carry out Term repo operations of what amount?- Rs. 100,000 crore
- What is the limit for banks to hold fresh acquisitions of SLR securities acquired from September 1, 2020 under HTM?- 22% of NDTL.
Source: RBI