What changed
RBI permitted scheduled commercial banks to access additional liquidity support under LAF up to 1% of their NDTL (based on the reporting Friday of the second preceding fortnight). For any SLR shortfall caused by using this facility between November 9 and December 16, 2010, banks can seek waiver of penal interest as an ad hoc, temporary measure.
What it means for you
This circular provides temporary liquidity relief to banks facing frictional pressure, allowing them to dip into SLR holdings without penalty. Banks can now manage short-term liquidity mismatches more flexibly, but the window is limited to just over a month. Lenders should plan their liquidity buffers accordingly, as the waiver is purely ad hoc and not a permanent relaxation.
What you must do
- Calculate your additional LAF eligibility as 1% of NDTL as per the specified reporting Friday.
- If you avail this facility, document the SLR shortfall separately and prepare to request penal interest waiver from RBI.
- Monitor liquidity closely and ensure compliance with SLR norms after December 16, 2010, when the measure expires.
- Communicate the temporary nature of this relief to your treasury and risk management teams.
Who it affects
All scheduled commercial banks, Treasury departments managing LAF and SLR compliance, Risk management teams handling liquidity buffers
What is the maximum additional LAF support I can avail under this circular?
You can avail up to 1.0% of your Net Demand and Time Liabilities (NDTL) as on the reporting Friday of the second preceding fortnight.
Will I be penalized for SLR shortfall if I use this facility?
No, RBI has allowed waiver of penal interest for any SLR shortfall arising from availing this additional LAF support, but only as an ad hoc, temporary measure valid until December 16, 2010.
How long is this temporary measure in effect?
The facility is available from November 9, 2010, to December 16, 2010. After that date, normal SLR maintenance rules apply.