Liquidity Boost: RBI allowed Banks to consider further 2% of their treasury holdings

Liquidity Boost: RBI allowed Banks to consider further 2% of their treasury holdings

Liquidity Boost: RBI allowed Banks to consider further 2% of their treasury holdings

The Reserve Bank of India (RBI) has allowed banks to consider a further 2% of their treasury holdings as high-quality liquid assets (HQLAs) under the Basel-III calculations, potentially releasing up to Rs 2 lakh crore and soothing a market jittery about credit freeze.

RBI increased the amount of statutory liquidity ratio (SLR), securities banks can consider as HQLAs to 15% of their total deposits from 13% earlier, potentially freeing up liquidity in the short-term. Banks have to mandatorily invest 19.5% of their total deposits in government securities.

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 to improve the distribution of liquidity in the financial system as a whole.

The move had an immediate impact on short-term rates with money market rates.

The short-term debt market has significantly improved with RBI measures likely releasing liquidity in the system. This will help more non-banking companies to tap the short-term debt market.

Source Economic Times

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