Money Market Operations [2/3]

The second part of Daily Money Market Operations data consists of RBI OPERATIONS, which are as follows:

RBI Notifications

:rbi: Money Market Operations as on 13th June
Reserve Bank of India - Press Releases

C. Liquidity Adjustment facility

LAF is carried out by repo and reverse repo transactions. It is not an inter-bank operation as it involves RBI as one of the parties.

It helps banks to meet any liquidity mismatch. They help to manage liquidity conditions in way that overnight rates remain in the band set by repo and reverse rates for LAF operations

Eligible collateral for borrowing

(i) Repo (Fixed Rate)

At this rate, banks borrow at the fixed repo rate announced in monetary policy review by RBI for a tenor of 1 -day. Thus, RBI infuses liquidity into the system by accepting eligible securities as collateral.

The auction is conducted electronically As on June 12, 2019, the amount transacted was Rs 43.47 billion at a fixed rate(cut-off rate) of 5.75%.

All Scheduled Commercial Banks (excluding Regional Rural Banks) and Primary Dealers having SGL and Current Accounts with RBI, Mumbai will be eligible to participate in the Repo auctions.

The repo facility will only be available against eligible securities held in excess of the securities required for maintaining the prescribed Statutory Liquidity Ratio (SLR). Therefore, while tendering bids with RBI for repo auction, banks must ensure that the collateral to be offered by them, on acceptance of their bid, represents their excess SLR holding.

(ii) Repo (Variable Rate)

Repos for tenor of more than 1-day are called term repos. They are conducted at not a fixed rate but at a rate decided during the auction. The rate is above the repo rate and is called Repo (Variable Rate).

Term Repos are conducted for a period of 7,14 and 28 days. As banks can borrow for more than one-day under term repo-window, it helps RBI to manage rates in money market at around the benchmark policy rate.

RBI tries to conduct term repos frequently make borrowing easier for banks and meet the liquidity demands.

As announced in the revised Liquidity Management Framework on August 22, 2014, Reserve Bank conducts regular variable rate 14-day term repos four times during a reporting fortnight.

:rbi: RBI announces revised Liquidity Management Framework - August 22, 2014
Reserve Bank of India - Press Releases

Timings:
9:30 am -10:30 am for LAF Repo Operations
4:45 pm - 5:15 pm for LAF Reverse Repo Operations
11-11:30 am for LAF Term Repo Auctions

:rbi: Term Repo under Liquidity Adjustment Facility- Operational Guidelines - February 13, 2014
https://rbi.org.in/scripts/NotificationUser.aspx?Id=8743&Mode=0

Term repo auctions will be conducted on CBS (E-KUBER) platform through electronic bidding as is done in the case of OMO auctions

To ensure risk management, RBI allows participating banks to borrow only 0.75% of NDTL under term repo window and 0.25% of NDTL under 1-day fixed rate repo window. Thus, both the windows allow RBI to help banks meet their short-term liquidity.

The Urjit Patel Committee Report sought to conduct longer term repos to allow banks to align long term lending with policy rate(repo rate)

(ii.a) Regular (14 day) - Repos for a tenor of more than one day are called term repos.

As of June 12, 2019 , banks borrowed Rs 31.50 billion at a variable rate of 6.01% for 14 days maturing on 14/06/2019.

(ii.b) Others - This include Repos for a tenor of other than 14 days.

(iii) Reverse Repo (Fixed Rate)

In a reverse repo, banks acquire/buy securities from RBI and park their funds with RBI. When the reverse repo transaction matures, banks return/sell securities to RBI and receive funds with the profit. When banks have idle cash which they do not wish to lend in market, then they enter into reverse repo transactions with RBI and earn a little extra income on its idle cash.

(iv) Reverse Repo (Variable Rate)

E. Standing Liquidity Facility (SLF) Availed from RBI

F. Net Liquidity

Net liquidity is the liquidity that RBI injects/puts into the banking system after lending to banks under Repo, MSF and SLF window minus the borrowing from the banking system under Reverse Repo window.

F. Net Liquidity

Net liquidity is the liquidity that RBI injects/puts into the banking system after lending to banks under Repo, MSF and SLF window minus the borrowing from the banking system under Reverse Repo window.