The Reserve Bank of India (RBI) is likely to review the liquidity management framework in the next few days; sources familiar with the development told Zee Business.
The central bank is preparing to change the methods of liquidity absorption and injection. It also plans to make main operations more flexible and market-friendly, the sources said.
Key things to know:
Here are some possible changes we can see:
1. 7 days VRR/VRRR operations instead of 14 days
— RBI can make liquidity operations more dynamic by shortening the tenure.
— Quick response is possible with market movements.
— EMI fluctuations of floating rate personal and car loans may increase.
2. Liquidity linked to operation Net Demand and Time Liabilities (NDTL)
— The liquidity requirement of banks can be decided in proportion to their total deposits (NDTL).
— Liquidity distribution and management are more scientific and equitable.
— Competition in loan rates of big banks will increase, and FD and loan rates may increase in small banks.
3. Return of fixed rate operations if needed
— RBI can provide money at a fixed rate in case of sudden liquidity stress or market instability.
— Banks will get clarity in uncertainty.
4. Call Rate can remain the operating target
— The interbank loan (call money) rate can remain the main policy indicator.
— Stability in interest rates and ease of estimation.
Meanwhile, the RBI has issued a new circular for co-operative banks. The circular has shifted from the earlier ‘Financially Sound and Well Managed’ (FSWM) framework to a more streamlined ‘Eligibility Criteria for Business Authorisation’ (ECBA) system. This marks a decisive shift toward empowering co-operative banks with greater autonomy, provided they meet certain financial and governance benchmarks. Read moreÂ
Also Read: RBI may have more room to cut rates with inflation at 77-month low: Finance Ministry report
