Expert Zone

Straight from the Specialists

How the RBI’s recent measures affect you

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(Any opinions expressed here are those of the author and not of Reuters)

Banking is the backbone for growth in large economies such as India. Banks provide short-term finance to trade, industry and agriculture while also ensuring excess money is channelized into productive assets via deposits and financial intermediation.

Banks have to work under the stipulated policies of the central bank with respect to deposit mobilisation and lending for which they need to maintain minimum cash balances and government securities.

Banks may either run a surplus (deposits higher than lending) or a deficit (lending higher than deposits). Cash-rich banks lend to cash-deficient banks for a limited period through overnight call money, commercial deposits, etc. The central bank also offers liquidity through:

- Liquidity Adjustment Facility (LAF) at the repo rate (currently 7.25 percent) up to a limit for up to seven days against excess Statutory Liquidity Ratio (SLR) as collateral.

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