Reserve Bank To Inject Rs 25,000 Crore Liquidity in Capital Market

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The Reserve Bank announced a Rs 25,000-crore liquidity injection through purchase of government securities in May. The purchase, called as open market operations (OMOs), will be undertaken in two equal tranches with the first one on May 2, the central bank said in a statement. The RBI said the OMOs are being carried out “based on a review of the evolving liquidity conditions and assessment of the durable liquidity needs going forward”.

It can be noted that the RBI has been using OMOs through the prolonged period of weak liquidity starting FY19 itself and repurchased bonds of over Rs 2.8 L crore during the last fiscal year. Lately, it has devised a new tool in rupee-dollar swaps as a way to bridge the liquidity gap. It has already done two such auctions of $5 billion each on March 26 and April 23. While the first was a huge success with over three times demand, the details of Tuesday auction is awaited.

At the May 2 repurchase, the RBI said it will repurchase five securities with dates of maturity extending from next year to 2032. The date of the next auction and the government bonds to be purchased in that auction would be communicated in due course, it said. RBI may offer more time for bank-led resolution of NPAs The RBI is likely to adopt a more accommodative approach towards resolution of stressed assets when it issues a revised circular, replacing the controversial February 12 circular quashed by the SC.

Sources said the major contention in the RBI controversial February 12, 2018, circular, including the one-day default norm, that was challenged in the court leading to its quashing, will be done away with in the new circular. Instead, banks will be given 30 days time from the first default to identify and qualify an account as a bad debt (special mention account or SMA) and initiate a resolution exercise. Besides, the 180-day period given for completing the bank-led resolution will start only after an account is declared an SMA I thirty days from first default.

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