RBI frees up about Rs 2 trillion worth of liquidity for the banking system
The Reserve Bank of India (RBI) on Thursday freed up about Rs 2 trillion worth of liquidity for the banking system by tweaking how the solvency ratio is calculated,
effective October 1. The move comes as the banking system liquidity tightens and money market rates shoot up. However, the freed-up money will unlikely prompt banks
to buy NBFC papers. Sources told Business Standard that banks had recently told the central bank that they were not interested in buying NBFC debt papers for fear of
rising mark-to-market losses. “The RBI is doing the right thing. They have already done two open market operations (secondary market bond purchase), and now they have
freed up the fund. What banks will do with the money is something up to themselves,” said Jayesh Mehta, head of treasury at Bank of America Merrill Lynch.
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