Thursday, October 23, 2008

Finance Minister Reviews Liquidity Situation - Oct 23, 2008

Finance Minister P Chidambaram held a meeting with senior bankers last evening in the backdrop of easing liquidity situation following a slew of measures taken by both RBI and the government.The meeting reviewed situation in the light of easing liquidity situation, Punjab National Bank Chairman and Managing Director K C Chakrabarty said.Credit delivery to productive sector was also discussed during the meeting, he said.

State Bank of India Chairman O P Bhatt and Indian Banks Association and Bank of India Chairman.T S Narayanaswami also attended the meeting.When asked whether any meeting with Prime Minister was also there on the day, Chakrabarty said, I am not aware of that.

Last month, owing to the tight liquidity situation, many banks had tightened their purse and went slow on credit disbursal.Cash in the market dipped to the extent that inter-bank call money rates went as high as 23 per cent.However, Finance Minister P Chidambaram came to the rescue of borrowers.Following this, RBI issued a notification saying, In view of the improved liquidity in the markets, the banks concerned are advised to review all such cases and permit drawal of sanctioned limits, guided by their usual commercial judgment. PRI COM ECO ESPL.

RBI had also said that it had noticed that in view of somewhat tight liquidity conditions in the markets in the recent past, some of the banks had been averse to disbursing working capital limits and term loans (including short-term loans) to clients against the sanctioned limits.

Thereafter, to ease the liquidity situation, RBI had taken a slew of measures, the latest being repo rate (short-term lending rate) cut by 100 basis points to eight per cent on Monday.Among other measure taken to infuse liquidity included slashing Cash Reserve Ratio - the slice of bank deposits to be kept with the central banks - by 250 basis points. The reduction led to release of whopping Rs 1,00,000 crore in the banking system.In addition to this, the RBI gave Rs 25,000 crore to banks, RRBs and cooperative credit institutions for their outgo on debt waiver scheme, among other measures.

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