What changed
The Rs 3,000 crore ceiling on daily reverse repo under LAF was withdrawn from August 6, 2007, though RBI may re-impose it later. The Second LAF (SLAF), conducted daily between 3:00-3:45 pm since November 28, 2005, was also withdrawn from the same date. LAF now operates as a single window from 9:30-10:30 am on a fixed rate basis, with RBI retaining discretion to use fixed or variable rates and conduct overnight or longer term operations.
What it means for you
Banks can now access unlimited reverse repo at the fixed rate during the LAF window, improving liquidity management flexibility. The removal of the ceiling signals RBI's intent to absorb excess liquidity more freely, which may help stabilize short-term rates. The withdrawal of SLAF simplifies daily operations, reducing the need for a second auction window.
What you must do
- Update your treasury's LAF bidding strategy to account for unlimited reverse repo availability from August 6, 2007.
- Adjust internal liquidity management processes as the SLAF window (3:00-3:45 pm) is no longer available.
- Monitor RBI announcements for any re-imposition of reverse repo ceiling or changes to auction type (fixed vs variable).
- Ensure compliance with the single LAF window timing (9:30-10:30 am) for all repo/reverse repo operations.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury departments of banks, Liquidity managers and ALCO teams
What was the Rs 3,000 crore ceiling on reverse repo?
It was a daily cap on the amount banks could park with RBI under reverse repo. With its removal, banks can now place unlimited funds at the fixed reverse repo rate during the LAF window.
Why was the Second LAF (SLAF) withdrawn?
RBI cited current macroeconomic and liquidity conditions. The SLAF, introduced in November 2005, was a second daily auction from 3:00-3:45 pm. Its withdrawal simplifies LAF to a single window.
Will LAF auctions remain fixed rate?
Yes, until further notice, LAF auctions will be on a fixed rate basis. However, RBI retains flexibility to switch to variable rates or conduct longer term operations as needed.