MUMBAI: India´s finance ministry has called bankers into a meeting
on Friday to discuss setting up a new facility to absorb surplus cash in the
banking system, according to a letter sent to heads of lenders seen by Reuters
on Thursday.
The
finance ministry wants to discuss implementing a new framework called a
"standing deposit facility", the letter said, that would drain
surplus cash at a rate lower than the repo rate without the need for any
collateral. The cash would be deposited with the Reserve Bank of India,
and revives a proposal issued by the central bank in 2014 as another way to
drain funds. If implemented, the plan would resolve a major headache facing
Indian regulators: how to reduce a surge in cash deposits since Prime Minister
Narendra Modi banned higher-value notes in November. Those cash deposits
have resulted in liquidity rising to around 4 trillion rupees ($61.13 billion)
in March from 2 trillion in January.
That
amount of cash had raised concerns about inflation at a time when the RBI is
seeking to prevent rising prices by changing its policy stance to
"neutral" from "accommodative.
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