What changed
The RBI extended the liquidity easing measures announced on October 29, 2010, to cover all days from November 1 to November 4, 2010. Banks can now avail additional LAF support up to 1% of NDTL (as on October 8, 2010) during this period, and for the LAF auction on November 4, 2010 (covering four days), banks may seek waiver of penal interest for any SLR shortfall arising from availment of this facility up to November 7, 2010.
What it means for you
This temporary measure provides banks with extra liquidity headroom to manage frictional pressures without incurring penalties for SLR non-compliance. It signals RBI's proactive stance to support banking system stability during tight liquidity conditions, but banks must treat this as an ad hoc facility and plan for normalization.
What you must do
- Calculate additional LAF borrowing capacity as 1% of NDTL as on October 8, 2010, and avail it through LAF auctions from Nov 1-4.
- Ensure SLR shortfall arising from this facility is documented and apply for penal interest waiver for the period up to Nov 7, 2010.
- Monitor liquidity positions closely and prepare for withdrawal of this temporary measure after Nov 7, 2010.
- Update internal treasury and compliance teams on the extended timeline and waiver conditions.
Who it affects
All Scheduled Commercial Banks, Treasury departments managing LAF auctions, Compliance teams handling SLR maintenance
What is the maximum additional LAF support a bank can avail under this circular?
Banks can avail additional liquidity support up to 1.0% of their Net Demand and Time Liabilities (NDTL) as on October 8, 2010, during November 1-4, 2010.
Is the penal interest waiver for SLR shortfall automatic?
The waiver is available for any SLR shortfall arising from availing this facility, but only up to November 7, 2010, and as an ad hoc, temporary measure. Banks should ensure proper documentation.
Does this circular apply to all scheduled commercial banks?
Yes, it applies to all scheduled commercial banks as addressed in the circular.