Looking upon the ongoing stressful condition of the nation’s economy created by the COVID-19 pandemic, it has been decided to extend the enhanced borrowing facility provided to the banks to meet their liquidity shortages till the 30th of September by Reserved Bank of India.
Borrowing limit of scheduled banks under the MSF, i.e. Marginal Standing Facility scheme has been increased from 2% to 3% of their NDTL, i.e. Net Demand and Time Liabilities with effect from 27th of March this year as a temporary measure by the Reserved Bank of India. 4.25% is the current rate of where the MSF stands.
Banks can borrow overnight funds concerning their right of choice by dipping into the SLR, i.e. Statutory Liquidity Ratio under the Marginal Standing Facility.
This relaxation which has now been extended to the 30th of September was earlier granted till the 30th of June. In a circular Reserved bank of India stated that “On a review, it has now been decided to extend this enhanced limit till September 30, 2020.”Banks have been permitted for the continuation to access funds under the Marginal Standing Facility against their excess SLR holding it.
The relaxation on the minimum daily maintenance of the CRR, i.e. Cash Reserve Ratio at 80% has also been extended further for three months till 25th of September, 2020 by the Reserve Bank of India in the practice of the power conferred under the Section 42(1) of the Reserved Bank of India Act, 1934. On the 27th of March, the minimum daily maintenance of the Cash Reserve Ratio was reduced to 80% from 90% till the 26th of June, 2020.
In terms of social distancing of staff and resulting strains on reporting requirements, the banks were continuing to face hardships and this step was taken in overview and regard to the current situation.
The major terms…
MSF (Marginal Standing Facility)- in the Monetary Policy(2011-12) of RBI a new scheme has been announced, the Marginal Standing Facility. It is the penal rate at which banks can borrow money from the central bank over and above what is available to them through the Liquidity Adjustment Facility window.
NDTL (Net Demand and Time Liabilities)-the sum of time liabilities and demand of banks with other banks and the public wherein to get the net liability of the other banks the assets of e other banks are subtracted is called Net Demand and Time Liabilities. The large part of the bank deposits is formed by demand and time deposits from the public.
SLR (Statutory Liquidity Ratio)- a certain percentage of the deposit has to be invested by a bank in specified financial securities like Central or State Government securities and this refers to Statutory Liquidity Ratio. This amount of money is mostly invested in government securities that mean the bank can earn more interest in these investments as against CRR where they don’t earn anything.
CRR (Cash Reserve Ratio)– the ratio of deposits that banks have to keep with the Reserve Bank of India is referred to as Cash Reserve Ratio. A certain percentage of the total deposits have to be kept in the current account of Reserved Bank of India under this CRR.