MUMBAI: RBI pumped Rs 54 billion ($1.4 billion) into the market and extended trading on its electronic cash platform by an hour on Friday to ease a sudden cash crunch in the banking system. The Reserve Bank of India's (RBI) steps came after overnight cash rates soared to 40-60 percent, the highest level in 10 months and much above the 6-7.75 percent when cash is adequate, as banks scrambled to borrow cash to meet funding needs.
The central bank injected the cash at a special liquidity operation, its first in nearly six months. Overnight cash rates immediately fell on the news, with money rates falling to 6.50-7.50 percent. Cash has been squeezed as investors applied for some large share offerings. Reliance Power's $3 billion initial public offer was covered almost 70 times on Friday afternoon. Problems in the central bank's real-time gross settlement facility (RTGS), an online mechanism to enable banks to transfer funds among themselves, had added to the problems, dealers said.
"Due to some technical issues that emerged temporarily today in the operation of the RTGS system and today being a reporting Friday, banks reported some special liquidity problems to the Reserve Bank of India," the central bank said. "The RBI therefore, decided to conduct a special liquidity facility between 4:30 p.m. and 5.00 p.m. to provide liquidity as needed by the banks," it said. Banks are required to report their cash positions with the central bank every two weeks. The cash trading hours on the central bank's electronic platform are normally 9 a.m. to 5 p.m.
The central bank injected the cash at a special liquidity operation, its first in nearly six months. Overnight cash rates immediately fell on the news, with money rates falling to 6.50-7.50 percent. Cash has been squeezed as investors applied for some large share offerings. Reliance Power's $3 billion initial public offer was covered almost 70 times on Friday afternoon. Problems in the central bank's real-time gross settlement facility (RTGS), an online mechanism to enable banks to transfer funds among themselves, had added to the problems, dealers said.
"Due to some technical issues that emerged temporarily today in the operation of the RTGS system and today being a reporting Friday, banks reported some special liquidity problems to the Reserve Bank of India," the central bank said. "The RBI therefore, decided to conduct a special liquidity facility between 4:30 p.m. and 5.00 p.m. to provide liquidity as needed by the banks," it said. Banks are required to report their cash positions with the central bank every two weeks. The cash trading hours on the central bank's electronic platform are normally 9 a.m. to 5 p.m.