RBI discontinues second LAF

Signaling easing of pressure on resources, the Reserve Bank of India (RBI) today said it would discontinue the second liquidity adjustment facility (LAF) being conducted daily since May 28. It will, however, continue to conduct the second LAF session on every reporting Friday.

RBI had begun second LAF in late May after sensing pressure on liquidity due to payments for spectrum fees by telecom companies and the first instalment of advance tax.

Meanwhile, LAF remained in surplus for the third day today. Banks placed excess funds worth Rs 615 crore in the first session. In the second session, banks parked net Rs 1,140 crore with the central bank. They parked Rs 2,460 crore and borrowed Rs 2,300 crore, according to RBI data.

Yesterday, RBI had absorbed net Rs 6,675 crore at LAF.

Dealers said redemption of bonds worth Rs 28,000 crore improved liquidity conditions. Also, the increase in government expenditure is adding resources to the system.

Last week, banks had borrowed more to protect themselves from any sharp rise in the repo rate.