RBI will take action if liquidity deficit continues for long: H R Khan

RBI will take action if liquidity deficit continues for long: H R KhanReserve Bank of India (RBI) will step in if the ongoing spate of liquidity deficit persists for long, Deputy Governor H R Khan said.

Speaking to reporters on the sidelines of the Indian Banks’ Association’s two-day conference, Bancon 2012, Mr. Khan said that the problem of liquidity deficit might pass off, but if it becomes longer, then the central bank would take action.

Khan told reporters, “It's (the liquidity deficit) short term, very short term. It may pass off, if it is slightly longer, we will take action. If it is longish, if the liquidity shortness continues, we will take action.”

However, Khan declined to specify any particular tool to tackle the problem.

Around Rs 1 lakh crore were being borrowing by banks per day from the RBI’s repo window recently, which is higher than the usual. According to Khan, the combination of higher government borrowing and the festive season was responsible for the constrained liquidity.

In the recent past, the central bank had to resort to open market operations or government bond buybacks to infuse liquidity into the economy.

By the way, Khan also said that the government plan to start giving subsidies through direct cash transfers would be very beneficial to the banking system as banks would also get an opportunity to cross-sell other products because of the fund flows.