RBI extends second LAF, withdraws SLR facility

The Reserve Bank of India (RBI) has extended the second daily liquidity adjustment facility (LAF) for commercial banks by two weeks to July 30.

RBI, however, didn’t extend the facility under which banks could borrow against 0.5 per cent of their holdings of statutory liquidity ratio bonds.

The move, said some dealers, could be an indication of RBI’s increasing comfort with the liquidity situation. The bank using this facility could maintain its statutory liquidity ratio at 24.5 per cent, instead of the required 25 per cent.

Banks had not utilised the SLR relaxation over the past one month, said a senior State Bank of India official. The discontinuation was an indication of improving liquidity, he said. Extension of LAF would help banks manage resources, he said.

The central bank had introduced the second LAF on May 26 to help banks adjust their daily liquidity positions and avoid any mismatch after large withdrawals for payment of advance tax and telecom licences. In its second LAF auction on Friday, RBI infused Rs 12,455 crore in the system. It had infused Rs 28,520 crore in the first auction.