FinMin meets bankers to sort out liquidity issue

The finance ministry today held a meeting with bankers to discuss ways to utilise the excess liquidity in the system.

There was consultation on introduction of standing deposit facility (SDF). While some bankers agreed to it, others sought more time to assess the entire scheme, sources said.

The SDF is a tool used for sucking out surplus liquidity without the need for a collateral in exchange. 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 1,000 being parked with banks.

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

High cash deposits have raised concerns about price rise at a time when the 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.

The 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.

The central bank kept the repo rate on hold at 6.25 per cent, the lowest in six years.