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Mr P. Chidambaram

Our Bureau

New Delhi, Oct. 15 The Finance Minister, Mr P. Chidambaram, on Wednesday announced that the Reserve Bank of India would provide temporary liquidity support of Rs 25,000 crore to commercial banks and Nabard against the farm debt waiver’s first instalment reimbursement monies due to them from the Government on November 1.

The RBI’s “uncollateralised” liquidity support (a form of unsecured financial accommodation) comes in the wake of absence of Parliamentary sanction for payment of Rs 25,000 crore under the scheme. Also, banks do not have enough surplus Government securities to release for resource accommodation.

So far, Parliament has approved only Rs 10,000 crore and the balance Rs 15,000 crore of the first instalment was expected to be approved through supplementary demand for grants in the coming session.

But, with banking system requiring liquidity support, the RBI and the Centre have now decided that the farm debt waiver’s first instalment of Rs 25,000 crore would be immediately made available to the lending institutions as against the earlier planned date of November 1.

While commercial banks will get support of Rs 7,500 crore, Nabard would get Rs 17,500 crore. The RBI assistance would be provided for three weeks and the banks and other lending institutions would have to bear interest of 9 per cent a year for the liquidity support.

Meanwhile, Mr Chidambaram announced that the limit of foreign institutional investors (FII) investment in corporate bonds would be raised from $3 billion to $6 billion. Also, the Government has decided to provide certain banks access to finance to raise capital adequacy from 10-12 per cent level to reach 12 per cent by a suitable date in future.

More Stories on : Financial Policy | Farm credit | Agricultural Institutions

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