After the withdrawal of the legal tender character of the Rs 500 and Rs 1000 denomination notes with effect from November 9, 2016, there has been a surge in the deposits with the banks.
Consequently, there has been a significant increase of liquidity in the banking system which is expected to continue for some time. In order to facilitate liquidity management operations by the Reserve Bank of India in the current scenario, Government of India has on the recommendation of the Reserve Bank of India, decided to revise the ceiling for issue of securities under the Market Stabilisation Scheme (MSS) to Rs 6 lakh crore. The earlier limit was Rs 30,000 crore.
This hike is valid only for 28 days. Under MSS, the central bank will issue cash management bills (CMB).
Auction of 28-days CMB will be done using multiple price auction method.
RK Bansal, ED at IDBI Bank said a lot of money is lying in branches, which can't be moved to currency chest. Only when we move it to the currency chest, it will be counted as CRR.
One purpose is to reduce the liquidity till the money goes out, he said.
These bonds will mostly likely sell after December 9, he said.
The banks will be happy to deploy surplus funds in their balance sheets due to demonetisation, said Neeraj Gambhir, MD & Head – Fixed Income at Nomura.
Some roll over of CRR in the RBI’s policy meeting, he added.
More to follow...