What changed
Starting March 5, 2007, the daily reverse repo absorption under LAF is capped at Rs 3,000 crore, split as Rs 2,000 crore in First LAF and Rs 1,000 crore in Second LAF. Allocations will be pro-rata if bids exceed these limits. Bidders must have clear funds available at bid submission.
What it means for you
This cap tightens liquidity management, limiting the amount banks can park with RBI daily via reverse repo. Banks may face reduced earnings from idle funds and need to plan cash flows more precisely to avoid failed bids. The pro-rata allocation ensures fair distribution when demand exceeds the cap.
What you must do
- Ensure clear funds are available at the time of LAF bid submission to avoid rejection.
- Adjust daily liquidity planning to account for the Rs 3,000 crore reverse repo cap.
- Monitor LAF auction results for pro-rata allocation if bids exceed limits.
- Review internal cash management to optimize use of surplus funds within the new cap.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers
What is the new daily reverse repo cap under LAF?
From March 5, 2007, the total daily reverse repo absorption is capped at Rs 3,000 crore, with Rs 2,000 crore in First LAF and Rs 1,000 crore in Second LAF.
How will bids be allocated if they exceed the cap?
Allocations will be made proportionately on a pro-rata basis when tenders exceed the specified amounts.
What happens if a bank bids without having clear funds?
Banks and primary dealers must ensure clear funds are available at bid submission; otherwise, the bid may be invalid.