What changed
The margin requirement for Central Government dated securities and Treasury Bills under LAF and MSF was reduced from 5% to 4%. For State Development Loans (SDLs), the margin was cut from 10% to 6%. This means for a Rs.100 crore bid, banks now need to offer Rs.104 crore of G-secs/T-bills or Rs.106 crore of SDLs, down from earlier Rs.105 crore and Rs.110 crore respectively.
What it means for you
Banks can now access liquidity from RBI's LAF and MSF windows by pledging less collateral, freeing up securities for other uses. This reduces the cost of borrowing from these facilities and improves liquidity management. The change signals RBI's intent to ease funding conditions for banks and primary dealers.
What you must do
- Update internal systems and collateral management processes to reflect the new margin rates from April 2, 2013.
- Inform treasury and dealing rooms about the revised haircuts for LAF and MSF operations.
- Review liquidity contingency plans to leverage the reduced collateral requirements.
- Ensure compliance with all other unchanged terms of LAF and MSF schemes.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury departments of banks, Collateral management teams
What are the new margin percentages for LAF and MSF?
For Central Government dated securities and Treasury Bills, the margin is 4%. For State Development Loans (SDLs), it is 6%.
When do these revised margins take effect?
The new margin requirements are effective from April 2, 2013.
Do other terms of LAF and MSF change?
No, all other terms and conditions of the current LAF and MSF schemes remain unchanged.