RBI Relaxes SLR Rules to Ease Liquidity Fears

· Banks Allowed to Use up to 15% of SLR Holdings

To help banks overcome any possible liquidity constraints, the Reserve Bank of India on Thursday said they can avail of higher liquidity with effect from October 1 as it has enhanced the "Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR)" from the existing 11 per cent to 13 per cent of their deposits.

This move will take the total carve-out from SLR (statutory liquidity ratio) available to banks to 15 per cent of their deposits. Banks' SLR, which is the percentage of deposits that they have to mandatorily invest in government and state government securities, is currently at 19.5 per cent.

"This should supplement the ability of individual banks to avail of liquidity, if required, from the repo markets against high-quality collateral. This, in turn, will help improve the distribution of liquidity in the financial system as a whole.

Going forward, the Reserve Bank stands ready to meet the durable liquidity requirements of the system through various available instruments depending on its dynamic assessment of the evolving liquidity and market conditions," the RBI said.

Availing of liquidity against the securities under FALLCR is usually permitted to banks only under the conditions of stress.

Listing the proactive steps it has taken in the last few days to enhance liquidity in the financial system, the RBI said it has conducted/will be conducting Open Market Operation (OMO) in successive weeks on September 19 and September 27, 2018 and provided a liberal infusion of liquidity through term repos in addition to the usual provision via the Liquidity Adjustment Facility (LAF). As of September 26, banks had availed of ₹1.88 trillion through term repos from the Reserve Bank.