What changed
The earlier overall LAF allocation cap of Rs. 75,000 crore was withdrawn. Instead, each bank's LAF borrowing is now limited to 0.50% of its individual NDTL, using the same NDTL as for CRR maintenance. The combined allocation from the morning and additional LAF repo on reporting Fridays also falls under this individual cap.
What it means for you
Banks face a tighter, bank-specific liquidity ceiling, which could strain those with high NDTL but limited access to other funding. This measure is part of a broader RBI strategy to defend the rupee by absorbing excess liquidity. Lenders must recalibrate their liquidity management and may need to rely more on market borrowings or deposits.
What you must do
- Calculate your bank's LAF limit as 0.50% of current NDTL (same as CRR NDTL) and monitor usage daily.
- Update internal liquidity contingency plans to account for the reduced LAF access.
- Ensure compliance from July 24, 2013, and adjust borrowing across morning and additional LAF repo on reporting Fridays.
- Review alternative funding sources (e.g., term deposits, market borrowings) to cover any shortfall.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Treasury and ALM desks of banks, Banks with high NDTL and limited liquidity buffers
What is the new LAF cap for my bank?
Your bank's total LAF borrowing (including morning and additional repo on reporting Fridays) is capped at 0.50% of its Net Demand and Time Liabilities (NDTL), using the same NDTL figure as for CRR maintenance.
Does this replace the earlier Rs. 75,000 crore cap?
Yes, the earlier system-wide cap of Rs. 75,000 crore under LAF has been withdrawn and replaced by this individual bank-level cap based on NDTL.
When does this change take effect?
The new LAF cap is effective from July 24, 2013. All other terms and conditions of the LAF scheme remain unchanged.