What changed
Previously, banks could only access LAF using securities exceeding their SLR requirement. Now, as a temporary measure, banks can get additional LAF support up to 1% of net demand and time liabilities, even if it creates an SLR shortfall. Banks must write to RBI under Section 24(8) to request waiver of penal interest on that shortfall.
What it means for you
This gives banks extra liquidity headroom during tight conditions without immediate penalty for SLR non-compliance. It signals RBI's willingness to ease liquidity constraints temporarily. Banks should factor this into their liquidity planning but note the ad hoc nature—review is continuous.
What you must do
- Apply in writing to RBI under Section 24(8) if you avail this additional LAF and face SLR shortfall, requesting no penal interest.
- Monitor LAF/SLAF auctions from September 17, 2008 to access the extra 1% of NDTL support.
- Track evolving liquidity conditions as this measure is temporary and subject to review.
- Coordinate with treasury to ensure eligible collateral is available for LAF operations.
Who it affects
All scheduled commercial banks, Treasury departments managing liquidity, Compliance teams handling SLR reporting
What is the maximum additional liquidity I can avail under this measure?
Up to one per cent of your bank's net demand and time liabilities (NDTL), purely as a temporary facility.
Do I need to pay penal interest if SLR shortfall occurs due to this additional LAF?
Not if you apply in writing to RBI under Section 24(8) of the Banking Regulation Act, 1949, requesting waiver of penal interest. The circular advises banks to do so.
Is this a permanent change to LAF rules?
No, it is explicitly ad hoc and temporary. RBI will review it continuously based on liquidity conditions.