Banks seek liquidity support from Nostro accounts
This was one of the structural measures suggested for improving
liquidity in the money and foreign exchange markets when dealers had a meeting with the RBI Governor earlier this week.
The meeting was attended by representatives of Fixed Income Money Market Dealers Association (FIMMDA), Foreign Exchange Dealers Associationof India (FEDAI) and Primary Dealers Association of India (PDAI) as part of the central bank's pre-annual monetary policy consultations.
FIMMDA officials told the Governor that liquidity infusion against Nostro
balances would be similar to RBI doing buy-sell swaps in the foreign
exchange market but operating it under a liquidity adjustment facility
(LAF).
The three market associations also suggested that the limit of export
refinance could be increased to enable banks to borrow more under this
facility. They also felt that Clearing Corporation of India (CCIL) should allow corporate bonds to be used for collateralised lending and borrowing obligation (CLBO).
In order to improve liquidity in the government securities market, the
associations said RBI could execute an active consolidation of government securities to create large-sized benchmark issues of around 5, 10, 15 and 30 year maturities. At present, every maturity basket has a number of
illiquid government securities.
The dealers also argued in favour of making CCIL the nodal agency for
clearing and settlement of corporate bonds, in a similar way as government scurities, to improve liquidity. They felt that the introduction of screen-based trading for corporate bonds would also improve transparency in the market.