New intraday liquidity window for NEFT settlement from Monday, says RBI

Topics NEFT | RBI | Reserve Bank of India

From Monday, there will be another intraday liquidity facility to enable 24x7 settlement of funds under the national electronic funds transfer (NEFT) payment system, the Reserve Bank of India (RBI) said on Friday.

The RBI provides collateralised liquidity adjustment facility once a day — cut recently from two such facilities a few months back — and banks can borrow additional liquidity under an emergency window called marginal standing facility (MSF).

The central bank recently allowed round-the-clock transfer under NEFT, but banks raised doubts about the settlement issue. The RBI’s new window, exclusively for the settlement purpose, will ease the pressure significantly.

All banks will be eligible for the intraday facility, while the limit for such a facility would be set by the RBI from time to time, it said in a statement.

However, “the outstanding drawing at the end of the day under the LS (liquidity support) facility will be automatically converted into borrowing under the MSF”.

The MSF is done at a 25-basis-point higher spread than regular liquidity operations, which is done at the repo rate.

To give banks more flexibility and to facilitate their liquidity management, as an interim measure, the central bank also provided an additional fixed-rate reverse repo (in which it absorbs liquidity) and MSF (through which it lends at a slightly higher cost) window on all days.

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