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Informist, Friday, Feb. 7, 2025

--RBI Malhotra: Some bks reluctant to work in uncollateralised call money mkt 

--RBI: Some banks reluctant to on-lend funds, passively parking funds with us 

MUMBAI – Reserve Bank of India Governor Sanjay Malhotra, in his statement after the Monetary Policy Committee's three-day meeting, urged banks to proactively lend funds in the uncollateralised call money market instead of passively parking funds with the central bank under the Standing Deposit Facility. 

"It has been observed that some banks are reluctant to onlend in the uncollateratised call money market; instead, they are passively parking funds with the Reserve Bank," Malhotra said. "We urge the banks to actively trade among themselves in the uncollateratised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate."

The RBI will continue to infuse sufficient liquidity in the banking system, through both durable and transitory measures, while monitoring the evolving financial systemic conditions, the governor said. To ease overnight money market rates and infuse liquidity into the banking system, the RBI has so far conducted dollar/rupee buy/sell swap auctions and daily variable rate repo auctions, and bought nearly INR 600 billion worth of gilts through open market operations in January, the central bank said. The RBI is scheduled to conduct a 56-day variable rate at 1530-1600 IST.

The liquidity in the banking system has been in deficit since mid-December owing to outflows for advance tax payment, capital outflows and RBI's intervention in the foreign exchange market, and an increase in the currency in circulation, Malhotra said. RBI staff had earlier in the "State of the Economy" article in the January RBI Bulletin also observed that some banks' avoidance of lending money in the call money market after borrowing the funds from the RBI was skewing the distribution of liquidity in the banking system.  End

Reported by Vidhushi RajPurohit

Edited by Deepshikha Bhardwaj

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