Mumbai: Finance minister P Chidambaram has assured banks of an immediate release of Rs25,000 crore as compensation for agricultural loan write-offs and indicated relaxations in the Reserve Bank's repo rates and the statutory liquidity ratio for banks.

The moves follow infusion of fresh liquidity into the system by the Reserve Bank and the stock market regulator SEBI through monetary measures, including a cut in the cash reserve ratio and removing the cap on participatory notes for foreign institutional investors.

RBI governor Duvvuri Subbarao is expected to meet prime minister Manmohan Singh this evening amidst indications of a cut in the repurchase (repo) rate by at least half a percentage point and relaxation of the statutory liquidity ratio (SLR) by around 2 percentage points.

A reduction in the repo rate - the interest that RBI charges on short-term loans to banks and which impacts the interest rates in the market - by at least half a percentage point could help banks bring down lending rates.

The SLR - the amount that banks are required to invest in government bonds - currently stands at 24 per cent and a 2 percentage points cut will release funds to the tune of Rs70,000 crore into the market.

The finance ministry, meanwhile, is giving final touches to the relief package and the RBI is expected to open a window for immediate reimbursement of the money banks lost on the farm loan waiver.

The banks are expected to get the cash even before Parliament reconvenes on Friday and gives its approval, the finance minister told a press conference.

The Reserve Bank, meanwhile, has released an additional Rs20,000 crore to meet redumption needs of mutual funds. This comes over and above the Rs59,575 crore cash infusion by the RBI through repo.

The RBI infused Rs20,000 crore into the system after two mutual funds reportedly faced huge redemption pressure.

These measures themselves would release an additional liquidity to the tune of Rs235,000 crore into the system even as the government awaits the report of the committee on liquidity.

Realisation seems to have dawned on the government and the financial sector regulator that a mere cut in the cash reserve ratio is not enough to bolster the credit markets and ease liquidity.

Even finance minister Chidambaram, who was of the view that the liquidity issue alone was the 'root cause' of uncertainty, now say the measures taken to enhance cash flow are not sufficient.

''Liquidity was found to be inadequate and, consequently, lenders were unwilling to take risks. Some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks," Chidambaram said.

The government is also working to boost capital requirements amidst a sharp erosion in the value of their assets, including collateral held by them. It is likely that banks may be spared of the obligation to make provision for the losses under the 'mark -to-market' method.

The authorities, however, may follow a cautious approach and may not do away altogether with the provisioning norms lest it may recoil on the banks themselves.

Chidambaram also did not rule out the possibility of a ban on short sales in the futures market, which seems to have knocked ICICI shares.

''We are coordinating our actions. We are watching the situation carefully and we will respond swiftly according to the needs of the situation,'' he said, adding that the situation would change without all these if investors ''banish fear'' from their minds.