In view of the liquidity deficit in the banking system, the Reserve Bank of India (RBI) has decided to make available an additional aggregate amount of ₹5,000 crore to Standalone Primary Dealers (SPDs) under the Standing Liquidity Facility at the prevailing repo rate starting from January 31, 2024.
The central bank took this decision based on an assessment of the prevailing and evolving liquidity conditions.
The incremental limit for individual SPDs is being conveyed to them separately, RBI said. The repo rate (the interest rate at which banks draw liquidity from the RBI to overcome short-term liquidity mismatches) is at 6.50 per cent.
The banking system has been facing a liquidity deficit since September 2024, with the deficit standing at about ₹2.68 lakh crore as of January 29, 2024.
At the one-day variable rate repo auction, in which PDs participate along with Banks, conducted by the RBI on January 30, 2024, the demand for funds was 2.76 times the notified amount of ₹25,000 crore. The central bank allotted ₹25,008 crore to the bidders at a weighted average rate of 6.74 per cent.
PDs’ role in the government securities market includes functioning as a link between the RBI and the investors, providing liquidity in the secondary market, and offering market-making services.
They have certain privileges such as exclusive rights to participate in Treasury bill auctions, the right to act as a counterparty to open market operations of the central bank, or access to specific a line of credit, or permission to borrow particular issues from the central bank.
In late March 2020, the RBI had temporarily enhanced liquidity available to SPDs under the Reserve Bank’s Standing Liquidity Facility (SLF) from ₹ 2800 crore to ₹ 10,000 crore to facilitate year-end liquidity management by SPDs.