India's central bank extended trading on its electronic cash platform by an hour on Friday and said it will conduct an additional money market operation as part of measures to ease a sudden cash crunch in the banking system.
The Reserve Bank of India's (RBI) steps came after overnight cash rates soared to 40-60 percent - the highest level in ten months and much above its usual 6-7.75 percent band when cash is adequate as banks scrambled to borrow cash to meet funding needs.
The central bank said it would conduct a special liquidity operation between 4:30 pm (1100 GMT) and 5 pm (1130 GMT) on Friday, its first in nearly six months, where banks could borrow funds at its lending rate of 7.75 percent.
Cash has been squeezed as investors applied for some large share offerings. Reliance Power's $3 billion initial public offer was covered almost 70 times on Friday afternoon. Problems in the central bank's real-time gross settlement facility (RTGS), an online fund transfer mechanism to enable banks to transfer funds among themselves, had added to the problems, dealers said.
"Due to some technical issues that emerged temporarily today in the operation of the RTGS system and today being a reporting Friday, banks reported some special liquidity problems to the Reserve Bank of India," the central bank said.
"The RBI therefore, decided to conduct a special liquidity facility between 4:30 pm and 5.00 pm to provide liquidity as needed by the banks," it said. Banks are required to report their cash positions with the central bank every two weeks. The cash trading hours on the central bank's electronic platform are normally 9 am to 5 pm. Overnight cash rates immediately fell after the news, with money rates falling to 6.50-7.50 percent.
Comments
Comments are closed.