Meanwhile in India, the Government stepped up efforts to ease the credit crunch, as last week's measures failed to boost liquidity, especially for Mutual Funds, who were facing severe redemption pressure in money market funds. The Finance Minister continued to swear by the inherent strength of the India growth story, and even cited a recent note by IMF's research department that had stated that the Indian economy would continue to do well despite the impact of the global liquidity crunch. He added that the root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy.
The RBI pulled up banks for not parting with loans in the wake of the global financial crisis and the tightening of domestic liquidity. The central bank also chided banks for not restructuring the dues of the SMEs, under the prudential guidelines. The RBI decided to allow banks to take trading positions in Interest Rate Futures (IRFs). The central bank decided to further tighten the prudential norms for banks' exposure to derivative instruments. The RBI said that overdue receivables from corporates on account of mark-to-market (MTM) value of a derivative contract will be treated as a non-performing asset (NPA), if these remain unpaid for 90 days or more.
The RBI decided to conduct a special 14-day repo at 9% per annum for a notified amount of Rs200bn with a view to enabling banks to meet the liquidity requirements of Mutual Funds. The central bank also allowed banks to accept as collateral certificate of deposits (CDs) held by mutual funds for 15 days. However, banks borrowed only Rs35bn on Tuesday through the special LAF window, prompting the RBI to extend the special 14 day repo facility everyday until further notice. The money market remained stressed, forcing the RBI to slash the CRR by another 100 basis points with retrospective effect (Oct. 11).
In addition, the central bank allowed banks a further leeway of 0.5% in SLR to meet the cash requirements of mutual funds. On Sept. 16, the RBI had permitted banks to avail of additional liquidity support to the extent of up to 1% of SLR. The RBI said it will set up Special Market Operations (SMO) for public sector oil marketing companies when oil bonds become available. It also released the Rs250bn reimbursements to banks towards the farm loan waiver. The RBI also increased the interest rates on NRI deposits and FCNR (B) deposits by 0.5%.
Banks were also allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50% of their unimpaired Tier I capital as at the close of the previous quarter or US$10mn, whichever is higher, as against the existing limit of 25%. Meanwhile, capital market regulator SEBI too swung into action to stem the selloff in stock markets. It hiked the exposure margins for gross open positions in the Futures & Options segment to cut down volatility. The regulator also tightened the disclosure norms for FIIs and their sub-accounts to clamp down on 'illegal' short selling in overseas markets.
The RBI pulled up banks for not parting with loans in the wake of the global financial crisis and the tightening of domestic liquidity. The central bank also chided banks for not restructuring the dues of the SMEs, under the prudential guidelines. The RBI decided to allow banks to take trading positions in Interest Rate Futures (IRFs). The central bank decided to further tighten the prudential norms for banks' exposure to derivative instruments. The RBI said that overdue receivables from corporates on account of mark-to-market (MTM) value of a derivative contract will be treated as a non-performing asset (NPA), if these remain unpaid for 90 days or more.
The RBI decided to conduct a special 14-day repo at 9% per annum for a notified amount of Rs200bn with a view to enabling banks to meet the liquidity requirements of Mutual Funds. The central bank also allowed banks to accept as collateral certificate of deposits (CDs) held by mutual funds for 15 days. However, banks borrowed only Rs35bn on Tuesday through the special LAF window, prompting the RBI to extend the special 14 day repo facility everyday until further notice. The money market remained stressed, forcing the RBI to slash the CRR by another 100 basis points with retrospective effect (Oct. 11).
In addition, the central bank allowed banks a further leeway of 0.5% in SLR to meet the cash requirements of mutual funds. On Sept. 16, the RBI had permitted banks to avail of additional liquidity support to the extent of up to 1% of SLR. The RBI said it will set up Special Market Operations (SMO) for public sector oil marketing companies when oil bonds become available. It also released the Rs250bn reimbursements to banks towards the farm loan waiver. The RBI also increased the interest rates on NRI deposits and FCNR (B) deposits by 0.5%.
Banks were also allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50% of their unimpaired Tier I capital as at the close of the previous quarter or US$10mn, whichever is higher, as against the existing limit of 25%. Meanwhile, capital market regulator SEBI too swung into action to stem the selloff in stock markets. It hiked the exposure margins for gross open positions in the Futures & Options segment to cut down volatility. The regulator also tightened the disclosure norms for FIIs and their sub-accounts to clamp down on 'illegal' short selling in overseas markets.
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