What changed
The temporary COVID-era relaxation allowing banks to borrow under MSF by dipping into SLR up to 3% of NDTL is being withdrawn. Effective January 1, 2022, the dip limit reverts to the normal 2% of NDTL for overnight MSF borrowing.
What it means for you
Banks will have less headroom to use SLR securities for overnight liquidity from the MSF window, tightening a key liquidity buffer. Lenders relying on this facility for short-term funding must adjust their liquidity planning, as the available cushion shrinks by one percentage point of NDTL.
What you must do
- Review your liquidity contingency plans to account for the reduced MSF dip limit from January 1, 2022.
- Recalibrate your SLR holdings and NDTL projections to ensure compliance with the 2% cap on MSF borrowing.
- Communicate the change to treasury and ALM teams to avoid any last-minute funding gaps.
- Monitor overnight call money and repo rates for potential volatility as the window narrows.
Who it affects
All scheduled banks, Treasury departments, ALM and liquidity risk managers
Why is RBI reducing the MSF dip limit from 3% to 2%?
The 3% limit was a temporary COVID-19 relaxation to ease liquidity stress. With conditions normalizing, RBI is returning to the standard 2% dispensation as announced in the Governor's statement on December 8, 2021.
When does the new 2% limit take effect?
The change is effective from January 1, 2022. Banks must comply with the reduced dip of 2% of NDTL for overnight MSF borrowing from that date.
Does this affect any other SLR-related requirements?
No, this circular only changes the MSF dip limit. Other SLR maintenance requirements under Section 24 of the Banking Regulation Act, 1949 remain unchanged.