“One of the incentives for banks to disburse under these schemes was a 40 bps higher rate on surplus liquidity parked by banks with RBI. So effectively banks earned 3.75% on their surplus liquidity, however, the liquidity was parked under a 14-day reverse repo.
Since these notifications during the last year, the RBI has commenced Variable Rate Reverse Repo (VRRR) auctions, where liquidity is being absorbed for shorter tenor VRRR at rates higher than 3.75%. Hence the incentive for lenders to disburse under these schemes will not be driven by these incentives and accordingly, the liquidity parked by banks under reverse repo through this scheme stood nil as on February 9, 2022.”
On hike in Voluntary Retention Route (VRR) — Enhancement of Limits
“The enhancement of VRR limits for investments by foreign portfolio investors by Rs1.0 trillion to Rs2.5 trillion is a positive move, as the prevailing VRR limits are nearly exhausted, even as the overall FPI investments in Government securities and Corporate bonds has been on a declining trend over the past few years. While this enhancement in limits may pull in some additional funds amidst the rise in planned government borrowings, overall FPIs flows are likely to remain muted in the near term, given the concerns on India’s fiscal deficit as well as rising rates in developed economies.”
The author of this article is Mr. Anil Gupta, Vice President & Co-Group Head, ICRA
The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com
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