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RBI action to ease tight cash effective

RBI action to ease tight cash effective
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First Published: Sat, Jan 19 2008. 12 06 AM IST
Updated: Sat, Jan 19 2008. 12 06 AM IST
Interest rate on overnight call money, or the funds that banks borrow from other banks to tide over their temporary asset-liability mismatches, zoomed to 61%—the highest since March, on Friday after the real time gross settlement system (RTGS), a centralized payment system in which inter-bank payment instructions are processed and settled, crashed and did not function properly for more than an hour.
The RTGS snag, which occurred for the first time since the system was operationalized by the Reserve Bank of India (RBI) in March 2004, prompted the central bank to infuse an additional Rs5,400 crore into the system through a special auction.
Several bankers said the RTGS system was under pressure because of the heavy flow of money on account of the Reliance Power Ltd’s Rs11,700 crore initial public offer that was subscribed 75 times. The closure of the issue on Friday coincided with “reporting Friday” when banks need to deposit funds with RBI for maintaining their cash reserve requirement. Every alternate Friday, banks are required to maintain the deposit, which is 7.5% of their deposit liabilities, with RBI on which they do not earn any interest.
The call money rate quickly recovered to about 10% and closed at 07.75-08.00%.
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First Published: Sat, Jan 19 2008. 12 06 AM IST