The Hindu : RBI to help banks facing liquidity problem

Online edition of India's National Newspaper
Wednesday, Apr 30, 2003

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RBI to help banks facing liquidity problem — Jalan

MUMBAI APRIL 29. The Reserve Bank of India would extend liquidity support to a bank facing sudden and unforeseen liquidity problem, provided the bank is financially sound, the RBI Governor, Bimal Jalan, said today.

In some rare and unusual circumstances, a situation may arise when a bank faces a sudden and unforeseen liquidity problem particularly outside the normal liquidity adjustment facility (LAF) auction timings and on days on which such auctions are not held, Dr. Jalan notes in the Monetary and Credit Policy for 2003-04 announced here.

"In such exceptional and unforeseen circumstances, the RBI at its discretion, may extend liquidity support to such a bank if the said entity is otherwise financially sound, and after taking into account other relevant factors,'' he said.

ICICI Bank, the country's largest private sector bank, saw panic withdrawals from ATMs in Gujarat and Mumbai on bank holidays earlier this month following rumours that it was facing financial problems.

The RBI had then said that it was monitoring the developments and has arranged to produce adequate cash to ICICI Bank to meet the demands of its customers at the branches and ATMs.

Dr. Jalan said the liquidity support in such exceptional circumstances would be made available only for a minimum number of days required to overcome the unexpected liquidity pressure.

Dr. Jalan said as this exceptional financing could be had only in rare circumstances, an interest rate of 4 per cent above the reverse repo rate prevailing on that day (or a rate as may be decided by the RBI) would be charged.

Such liquidity support would be available against eligible securities with adequate margin and other conditions as the RBI may consider appropriate, Dr. Jalan added. — PTI

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