What changed
Previously, LAF liquidity was available only against securities exceeding the SLR requirement. This circular temporarily allowed banks to avail additional LAF support up to 0.5% of net demand and time liabilities, even if it caused an SLR shortfall. The facility was effective from May 28, 2010 to July 2, 2010.
What it means for you
Banks got a short-term liquidity cushion without immediately facing penal action for SLR non-compliance. This helped manage temporary cash mismatches, but the relief was limited to a small window and required a formal waiver application. Lenders had to proactively write to RBI to avoid penal interest on the shortfall.
What you must do
- Apply in writing under Section 24(8) of the Banking Regulation Act, 1949 to request waiver of penal interest for any SLR shortfall from this additional LAF.
- Monitor LAF auctions from May 28 to July 2, 2010 to avail the extra 0.5% liquidity support.
- Ensure the additional borrowing does not exceed 0.5% of your bank's net demand and time liabilities.
- Prepare for the expiry of this temporary facility after July 2, 2010 and revert to normal SLR compliance.
Who it affects
All scheduled commercial banks, Treasury and ALM desks, Compliance departments
What was the maximum additional liquidity a bank could avail under this facility?
Up to 0.5% of the bank's net demand and time liabilities (NDTL).
Did this facility automatically waive penal interest for SLR shortfall?
No. Banks had to separately apply in writing under Section 24(8) of the Banking Regulation Act, 1949 requesting waiver of penal interest.
How long was this temporary measure available?
It was effective from LAF auctions on May 28, 2010 until July 2, 2010.