What changed
The repo rate under the Liquidity Adjustment Facility (LAF) was increased by 25 basis points from 7.25% to 7.50%, effective immediately from June 16, 2011. Consequently, the Standing Liquidity Facilities—export credit refinance for banks and collateralised liquidity support for Primary Dealers—are now available at the revised repo rate of 7.50%.
What it means for you
Banks and Primary Dealers will face higher costs for accessing these standing liquidity windows, as the rate has moved up in line with the repo hike. This could tighten liquidity conditions and increase the cost of funds for banks, potentially leading to higher lending rates for customers. The move signals RBI's intent to curb inflationary pressures by making short-term borrowing more expensive.
What you must do
- Review your bank's reliance on export credit refinance and assess the impact of the 25 bps rate hike on funding costs.
- Communicate the revised rate to treasury and credit teams to adjust pricing strategies for loans and advances.
- Monitor liquidity positions closely and consider alternative funding sources if the higher cost becomes a constraint.
- Update internal systems and documentation to reflect the new repo rate of 7.50% for standing facilities effective June 16, 2011.
Who it affects
All Scheduled Banks (excluding Regional Rural Banks), Primary Dealers, Treasury departments of banks, Borrowers relying on export credit refinance
What is the new repo rate effective from June 16, 2011?
The repo rate under the Liquidity Adjustment Facility (LAF) was increased by 25 basis points from 7.25% to 7.50%, effective immediately from June 16, 2011.
Which standing liquidity facilities are affected by this change?
The Standing Liquidity Facilities for banks (export credit refinance) and Primary Dealers (collateralised liquidity support) are now available at the revised repo rate of 7.50%.
Are Regional Rural Banks (RRBs) covered by this notification?
No, the notification explicitly excludes Regional Rural Banks (RRBs) from its scope.