More funds for banks in India

The Reserve Bank of India on Friday said it would conduct a special 14-day repo auction at 7.5 per cent for Rs. 55,700 crore ($11.2 billion).

The reversal of the auction will take place on December 12, it said in a statement. The measure was announced with a view to enabling banks to meet the liquidity requirements of mutual funds (MFs) and non-banking financial companies (NBFCs) either on incremental or on rollover basis.

It may be recalled that the Reserve Bank of India had announced earlier that it would conduct the special fixed rate term repo under liquidity adjustment facility every day till the end of March, 2009, up to a cumulative amount of Rs 60,000 crore, on outstanding basis. Authorities, stung by the rising rubble of the credit crisis and worsening growth outlook, have infused over Rs 200,000 crore into the system through various measures.

The Reserve Bank of India (RBI) has cut the cash reserve ratio-proportion of money banks have to park with the RBI-by 3.5 percentage points to 5.5 per cent releasing about Rs 1,40,000 crore into the system. The repo rate-the rate at which banks borrow from the RBI-has also been cut by 1.5 percentage points to 7.5 per cent.

Officials did not rule another 0.50 percentage point in the coming days to reduce borrowing costs for banks and industry. Most banks have reduced their lending rates recently by about 0.75 percentage points, but analysts felt there was scope for further easing.