Finance ministry calls banks to discuss new facility to absorb cash

Banks have seen a surge in cash deposits ever since demonetisation

The finance ministry has called bankers into a meeting on Friday to discuss setting up a new facility to absorb surplus cash in the banking system, according to a letter sent to all heads of lenders seen by Reuters on Thursday.

The finance ministry wants to discuss implementing a new framework called a "standing deposit facility" that would drain the surplus cash at a rate lower than the repo rate without the need for any collateral, the letter said.

The proposal on draining surplus cash through such a facility had previously been mooted by the Reserve Bank of India.

Banks have seen a surge in cash deposits after Prime Minister Narendra Modi last year banned higher-value note bills.