The Finance Ministry said on Tuesday Reserve Bank of India action to allow banks to borrow more funds from it would inject liquidity into the system that is facing a cash crunch because of a slew of IPOs and busy credit season."They have taken some action on Monday and that would put money in the system and would keep doing it as and when necessary," Finance Secretary Ashok Chawla said.
He was speaking to reporters on the sidelines of a function organised by the Finance Ministry and think tank NIPFP.
RBI on Monday allowed banks to borrow funds from it, even if they miss mandatory requirement to keep 25 per cent of their deposits in government bonds by 2 per cent.
For this purpose, RBI will continue to conduct special Liquidity Adjustment Facility.
RBI lends and borrows money from banks against government securities under this facility.
RBI announced these measures on fears of tightening of liquidity in the coming weeks due to expected pick up in credit offtake and lining up of
IPOs.
While manganese ore company MOIL's IPO is open for subscription, Shipping Corporation's FPO will open on Wednesday. Both IPOs are expected to raise about Rs 1,200 crore (Rs 12 billion) each.
About Rs 22,000 crore (Rs 220 billion) has been mopped up from public offers of state-run companies so far this year.
The tight cash position in the system can be gauged from the fact that banks have borrowed over Rs 1 lakh crore (Rs 1 trillion) through the liquidity adjustment facility of the RBI since November 8.
Prime Minister's Economic Advisory Council chairman C Rangarajan said, "Banks have been borrowing from the RBI continously.
"It indicates there is a need for liquidity and that is why they (RBI) has decided to take some action."
