Everybody is trying to strengthen financial position

Author: Avijit Bajpai

Be it RBI, SEBI or the Finance Minister, everybody is doing its bit in improving the liquidity position of the markets and make investors confident of a secure future. RBI comes up with a cut in CRR (Cash Reserve Ratio), every now and then; the most recent step being a 20,000 Cr MF scheme to help banks cope up with the sudden rise in demand of redemptions of Mutual funds. Decreased CRR requires less money to be deposited by banks to RBI as security, thereby adding to the cash at their disposal. This in turn adds to the liquidity.

The aggregate drop of 2.5 percentage points is estimated to infuse about Rs. 1 trillion in the market.
	Moving on the same lines, SEBI too has diluted SLR (Statutory Liquidity Ratio) from 25% to 23.5%, in recent days. This ratio has a direct bearing on the extent to which a bank can use RBI’s funds. The more is the amount invested in Government Bonds over and above the SLR, more are the chances of using RBI’s funds. In other words, if a bank does not invest in Government bonds, in excess of the prescribed SLR, it cannot have funds from RBI. Although this seen as a ‘temporary measure’, some respite can definitely be expected from the move. Finance Minister P. Chidambaram has shifted the ceiling of FII in corporate debt upwards, to $6 billion.