Date:23/05/2006 URL: http://www.thehindubusinessline.com/2006/05/23/stories/2006052303290600.htm

Back RBI pitches in to iron out payment glitches

Our Bureau

Settlement banks assured of liquidity support

Mumbai , May 22

In the backdrop of plunging stock prices, the Reserve Bank of India (RBI) on Monday announced that any demand for liquidity from settlement banks would be met to ensure smooth payment obligations.

This announcement by the regulator should be seen as assurance to stave off any speculation regarding settlement issues, said bankers.

A senior bank official said the RBI circular perhaps indicates that brokers who have difficulty in meeting their margin commitments, in the light of the declining equity market, could approach banks for loans. Consequently, banks could be allowed to borrow additional funds from the RBI through the repo route.

"When the share market sees such wide swings, there could be some temporary settlement problems, especially for individuals. The RBI's concern is to take care of such problems," said a senior bank official.

The settlement banks include private sector banks such as ICICI Bank and HDFC Bank and public sector banks such as Bank of India and Union Bank of India.

However, liquidity as of now is not a concern. On Monday, banks parked Rs 62,370 crore with the RBI through the reverse repo route.

The RBI did not receive any request from banks for additional liquidity on Monday, said an RBI official. Liquidity was quite comfortable and that was evident in the good response the central bank receives for its reverse repo auctions, he said.

An official from HDFC Bank said that liquidity per se was not a concern for the bank. An ICICI Bank spokesperson also said that the bank had met all obligations of its clients.

Union Bank of India too did not experience any strain on its liquidity, as its operations as the settlement bank for the NSE were not very significant, said an official from the bank.