Finance ministry, bankers to meet on utilising excess liquidity

The demonetisation announced by Prime Minister Narendra Modi on November 8 has led to a huge surge in deposits with scrapped notes of Rs 500 and 1000 being parked with banks.

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The Finance Ministry has called a meeting of bankers today to discuss the ways to utilise the excess liquidity in the system, reported PTI.

Finance ministry, bankers to meet on utilising excess liquidity

The meeting to be attended by heads of select large banks will be chaired by Economic Affairs Secretary Shaktikanta Das. Besides, RBI top officials including a Deputy Governor are also expected to attend.

The demonetisation announced by Prime Minister Narendra Modi on November 8 has led to a huge surge in deposits with scrapped notes of Rs 500 and 1000 being parked with banks.

According to various informal estimates about Rs 14 lakh crore has come back into the banking system.

Sources said the ministry wants to discuss implementing a new framework called a standing deposit facility that would drain surplus cash at an interest rate lower than the repo rate without the need for any collateral.

The cash would be deposited with the Reserve Bank and revives a proposal issued by the central bank in 2014 as another way to drain funds.

High cash deposits have raised concerns about price rise at a time when RBI is seeking to check inflation by changing its policy stance to neutral from accommodative.

Wholesale inflation soared to a 39-month high of 6.55 per cent in February and retail inflation inched up to 3.65 per cent due to higher food and fuel prices, justifying the RBI's move to hold rates at the last policy meet.

RBI left interest rates unchanged for second time in a row last month, waiting for more clarity on the inflation trend and impact of demonetisation on growth even as it hinted at no interest rate cut in immediate future by shunning its long- held "accommodative" monetary policy stance.

RBI kept the repo rate unchanged at 6.25 per cent, the lowest in 6 years.

Story first published: Friday, March 24, 2017, 13:00 [IST]
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