(LiveMint)
A panel set up by the Reserve Bank of India (RBI) has recommended that the central bank’s liquidity framework be made flexible enough to adapt to conditions when the system requires liquidity to be in surplus mode. Under the current setup, system liquidity is required to be in a small deficit, which could be an impediment when surplus liquidity is essential.
The panel has also asked RBI to institutionalize some of the ad hoc liquidity infusion measures the central bank has adopted over the past few months. This recommendation comes against the backdrop of the liquidity squeeze seen in the aftermath of the Infrastructure Leasing and Financial Services Ltd (IL&FS) crisis last year and the continuing liquidity mismatches faced by non-banking financial companies (NBFCs), leading many of them to default on their loan repayment schedules.
