What changed
The additional liquidity support under LAF was reduced from 2% to 1% of NDTL, following a permanent 1% reduction in SLR announced in the Mid-Quarter Review on December 16, 2010. This change applies from December 18, 2010 to January 28, 2011. The waiver of penal interest for SLR shortfalls remains available on a fortnightly basis.
What it means for you
Banks now have less headroom to borrow from RBI to meet SLR requirements, as the support is halved. This tighter liquidity measure aligns with the permanent SLR cut, signaling RBI's intent to normalize liquidity conditions. Banks must manage SLR compliance more carefully, as any shortfall beyond the 1% support could attract penalties.
What you must do
- Adjust your LAF borrowing to not exceed 1% of NDTL from December 18, 2010 onwards.
- Report daily the liquidity support availed under this facility.
- Apply for waiver of penal interest on a fortnightly basis for any SLR shortfall up to January 28, 2011.
- Monitor SLR positions closely to avoid exceeding the reduced support limit.
Who it affects
All Scheduled Commercial Banks, Treasury departments managing SLR compliance, Banks relying on LAF for liquidity support
Why was the LAF support reduced from 2% to 1%?
The reduction follows a permanent 1% cut in SLR announced in the Mid-Quarter Review on December 16, 2010, which reduced the need for temporary liquidity support.
Can we still get penal interest waiver for SLR shortfalls?
Yes, banks can seek waiver of penal interest on a fortnightly basis for any shortfall up to January 28, 2011, but only for shortfalls arising from availing this reduced LAF support.
What reporting is required for this facility?
The liquidity support availed under this facility must be reported on a daily basis to RBI.