Banks make limited use of RBI's special facilities to boost liquidity

Banks have used only a small proportion of the special refinance and forex swap facility offered by the Reserve Bank of India (RBI) to help them meet their liquidity requirements.

According to RBI data, under the swap facility offered to Indian banks to meet the liquidity requirements of their overseas branches and subsidiaries, banks had used the window to the extent of Rs 1,040 crore (around $215 million) till yesterday.

Similarly, in November, RBI had opened a special refinance facility for scheduled commercial banks to use up to 1 per cent of their net demand and time liabilities. The funds raised at the repo rate can be deployed for lending, especially to micro, small and medium enterprises. As on December 22, the outstanding through this route was estimated at Rs 6,283.30 crore.

 

Even under the Rs 60,000-crore repo window available for on-lending to mutual funds, non-banking finance companies and housing finance companies, through the 14/15 day special term repo route, banks had mopped up Rs 4,380 crore as of yesterday.

Banks had demanded a special facility from RBI to raise foreign exchange to meet their overseas commitment as accessing funds overseas has become tough in the wake of the credit crisis. Bankers said the usage is not very high as the situation in the overseas markets has improved.

While the central bank has taken a host of measures to enhance liquidity into the system, banks have been reluctant to lend due to the deteriorating economic environment.

An executive with a public sector bank said that banks would want to access the facility if other avenues had dried up. “At the moment, there is sufficient liquidity in the system. So, we need not access the facility. In addition, it is an expensive window,” he said

Besides, he said, the windows can be used for accessing funds for the short-term, while they are lending for a longer tenure. “It has the potential to create an asset-liability mismatch.”

A banker said that the demand from mutual funds had come down drastically now, while NBFCs were not the best bets to lend to at present since banks did not have a firm idea on how the funds were being deployed by these companies. In addition, a source said that the demand for funds had also come down in recent months.