RBI's allows reversals in SDF & MSF windows, lowering fund lock-up
RBI) Friday tweaked a mechanism to enable banks to better manage their funds in a 24x7 payments landscape that compels lenders to store away large amounts of funds as a precautionary measure, a practice that exacerbates stress when overall liquidity is in a deficit.
«With regard to the standing facilities of the Reserve Bank under the LAF (Liquidity Adjustment Facility), we have noticed simultaneous high utilisation of both MSF (Marginal Standing Facility) and SDF (Standing Deposit Facility) by the banks,» RBI Governor Shaktikanta Das said while detailing the central bank's monetary policy statement on Friday.
«We propose to address this situation and have decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays with effect from December 30, 2023. It is expected that this measure will facilitate better fund management by the banks,» Das said, adding that the measure would be reviewed after six months or earlier if required.
The central bank's latest step provides banks with the flexibility to borrow or lend out funds on weekends and holidays instead of borrowing heavily from the market or the RBI's lending windows ahead of non-working days.
The RBI's move comes after months of unusual liquidity distribution in the banking system, with lenders persistently storing large amounts of money in the central bank's absorption facility, which offers the least remunerative rate of interest.
«Earlier there was no provision for an automatic sweep-in for banks' funds during the weekend.
