Mumbai: The Reserve Bank of India (RBI) on Monday announced additional steps to ensure orderly market conditions and congenial financial conditions, including conducting a special open market operation and a repo term operation.
In a statement, the RBI said that recently, market sentiments had been impacted by concerns relating to the inflation outlook and the fiscal situation, amidst global developments that have firmed up yields abroad.
"The Reserve Bank will conduct additional special open market operation involving the simultaneous purchase and sale of Government securities for an aggregate amount of Rs 20,000 crore in two tranches of Rs 10,000 crore each," it said.
The auctions would be conducted on September 10 and September 17, it said, adding that the RBI remains committed to conduct further such operations as warranted by market conditions.
Further, the central bank will conduct term repo operations for an aggregate amount of Rs 1 lakh crore at floating rates -- the prevailing repo rate -- in the middle of September to assuage pressures on the market on account of advance tax outflows.
In order to reduce the cost of funds, banks that had availed of funds under long-term repo operations (LTROs) may exercise an option of reversing these transactions before maturity.
Thus, the banks may reduce their interest liability by returning funds taken at the repo rate prevailing at that time (5.15 per cent) and availing funds at the current repo rate of 4 per cent.
Currently, banks are required to maintain 18 per cent of their net demand and time liabilities (NDTL) in SLR securities. The extant limit for investments that can be held in HTM category is 25 per cent of the total investment.
Banks are allowed to exceed this limit, provided the excess is invested in SLR securities within an overall limit of 19.5 per cent of NDTL. SLR securities held in HTM category by major banks amount to around 17.3 per cent of NDTL at present.
However, there are inter-bank variations with some banks close to the 19.5 per cent NDTL limit.
"Accordingly, it has been decided to allow banks to hold fresh acquisitions of SLR securities acquired from September 1, 2020 under HTM up to an overall limit of 22 per cent of NDTL up to March 31, 2021 which shall be reviewed thereafter," the RBI said.
Further, the central bank said that it stands ready to conduct market operations as required through a variety of instruments so as to ensure orderly market functioning.
"The RBI remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of Covid-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability," it said.