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RBI offers special liquidity support to co-op banks

Our Bureau

MUMBAI, April 4

THE Reserve Bank of India has decided to provide special liquidity support to co-operative banks which are facing fund crunch.

The RBI today said it would provide liquidity support to banks for a temporary period up to 90 days against their eligible holdings of appropriate assets.

The move follows the liquidity problem being faced by co-operative banks in the wake of the pay-order scam involving several banks.

The RBI will lend through the reverse repo facility at rates that will be ``purely market determined.'' Currently, reverse repo rates have been ruling at nine per cent. However, RBI sources said that if co-operative banks were unable to quote such rates, the RBI could lower their interest rates.

Sources said the special liquidity support is a means ``of last resort'' in case banks are unable to pick up funds from the market.

Co-operative banks can also approach public sector banks and primary dealers for repos facilities against eligible Government securities held by them to meet their day-to-day operations, a RBI release said.

The Securities Trading Corporation of India, the leading primary dealer in Government securities, is prepared to provide co-operative banks with funds against RBI approved repo securities as collateral and a proper margin. Mr R.V. Joshi, Managing Directo r, said that the interest rates would depend on the prevailing market rates and the margin would be around 3-4 per cent.

Another leading primary dealer said that since the deals will be backed by Government securities, it will be ``a clean transaction with no risk involved.''