In a bid to mop-up liquidity as credit growth remains sluggish, the RBI is considering bringing back the Market Stabilisation Scheme (MSS).
Bank officials opine that although there could be an increase in the Cash Reserve Ratio (CRR) by at least 50 basis points over the next two weeks, there was also considerable nervousness on the impact. An increase by another 50 basis points would result in removing about Rs 20,000 crore of excess liquidity. However, bankers are of the opinion that the flexibility for a CRR hike was limited. They said credit growth continued to be sluggish so far into the peak season and there were few takers for even sanctioned credit limits.
The sluggish credit offtake was apparent from the low incremental credit deposit ratio which has remained stagnant at 35 per cent. Consequently, pushing up the CRR at this juncture, the bankers said, would in turn lead to a pass through impact, implying lending rates would also move up in tandem..”
The liquidity overhang, is expected to mount over the next few weeks in view of large redemptions/interest payouts from Government securities and State Development Loans. Given this situation, the preferred instruments for siphoning out the excess liquidity was more weighted in favour of fiscally neutral MSS security issuances.
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