RBI extends hike in banks' MSF loan facility, WMA limit to states to boost liquidity
01 October 2020
Reserve Bank of India (RBI) has given a boost to liquidity ahead of its monetary policy meeting by extending the tenure of enhanced lending facility for banks to six months to meet the cash crunch. The move comes amid the Corona virus epidemic and the current economic crisis caused by ‘lockdown’.
RBI said the temporary step is intended to increase the liquidity in banks. Under this, the loan limit under the Marginal Standing Facility (MSF) for scheduled banks was increased from 2 per cent to 3 per cent of their net demand and time liability (NDTL) from 27 March 2020.
The facility was initially meant for 30 June 2020 but in view of the Kovid-19 crisis, it was later extended to 30 September 2020. The RBI said in a statement, providing banks with a satisfactory position in terms of liquidity and extending the exemption given under MSF to meet their cash coverage ratio (LCR) requirements for six months, ie, till 31 March 2021
RBI said this measure will provide banks with access to additional funds of up to Rs49 lakh crore. Under MSF, banks can avail loans from the Reserve Bank for one day on government securities held under statutory liquidity ratio. The rate of interest on marginal standing facility is currently 4.25 per cent.
RBI has also decided to extend the relaxation in WMA limits and overdraft regulations to states/ union territories announced on 17 April 2020 and 7 April 2020, respectively, for a further period of 6 months till 31 March 2021.
RBI had earlier announced an increase in WMA limit of the states/UTs by 60 per cent over and above the level as on 31 March 2020, vide its press release dated 17 April 2020, with a view to provide greater comfort to state governments in undertaking Covid-19 containment and mitigation measures, and to enable them to plan their market borrowings.
Further, in order to provide flexibility to state governments to tide over their cash flow mismatches, the overdraft (OD) regulations were relaxed, with effect from 7 April 2020 wherein it was decided to increase the number of days for which a state/ UT can be in overdraft continuously to 21 working days from 14 working days; and the number of days for which a state/ UT can be in overdraft in a quarter to 50 working days from 36 working days.