RBI continues reduced Minimum Daily Maintenance of the Cash Reserve Requirement of banks as a temporary measure

Keeping in view of ongoing hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, RBI has decided to extend the relaxation of the minimum daily maintenance of the Cash Reserve Ratio of 80 per cent for a further period of three months, i.e., up to September 25, 2020.RBI circular in this regard said that changes made in Minimum Daily Maintenance of the Cash Reserve Requirement in terms of Section 42(1) of the Reserve Bank of India Act, 1934.

Under the MSF, banks can borrow overnight funds at their discretion by dipping into the Statutory Liquidity Ratio (SLR). Reserve Bank had increased the borrowing limit of scheduled banks under the marginal standing facility (MSF) scheme from 2 per cent to 3 per cent of their Net Demand and Time Liabilities (NDTL) with effect from March 27, 2020. The marginal standing facility rate currently stands at 4.25 per cent.

Banks may continue to access overnight funds under the MSF against their excess SLR holding.RBI in the Statement of Developmental and Regulatory Policies of March 27, 2020, announced that reduction in the CRR would release primary liquidity of about ₹ 1,37,000 crore uniformly across the banking system in proportion to liabilities of constituents rather than in relation to holdings of excess SLR. It further said, this dispensation will be available for a period of one year ending on March 26, 2021. This is intended to provide comfort to the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in times of stress at the reduced MSF rate announced in the MPC’s resolution.