RBI has reduced the liquidity adjustment facility (LAF) for each bank from 1 percent of the total deposits to 0.5 percent, thus limiting the access to borrowed funds from the Central Bank. The limit will come into force with immediate effect and continue till further notice, the RBI added. (Agencies)
In another measure to suck out liquidity from the system, RBI has asked banks to maintain higher average CRR (cash reserve ratio) of 99 percent of the requirement on daily basis as against earlier 70 percent. CRR is portion of deposits that banks are required to keep with RBI.
According senior bankers, the measures could suck out Rs 4,000-Rs 5,000 crore from the system. The additional measures to check exchange rate volatility comes within 10 days of RBI taking stern steps to suck out liquidity from the system.
On July 15, the RBI had raised short term interest rates and announced to sell government securities worth Rs 12,000 crore. However, it raised only 2,532 crore from the open market sales (OMS) on July 18.
Initially, RBI injected dollars into the market to check slide of rupee, which touched a life time low of 61.22 level against the dollar. It fell four paise to end at a week's low of 59.76 against the dollar.
The Reserve Bank said that over the last two months it has undertaken several measures to contain the volatility in the foreign exchange market. "These measures have had a restraining effect on volatility with a concomitant stabilizing effect on the exchange rate," it added.
RBI further said that based on a review of the measures, and an assessment of the liquidity and overall market conditions going forward, it decided to modify the liquidity tightening measures.
RBI said the July 16 instructions regarding the cap on overall allocation of funds at Rs 75,000 crore under LAF stands withdrawn. The changes in LAF will come into effect from tomorrow. The new norms on CRR will be effective from the first day of the next reporting fortnight, from July 27.
RBI relaxes KYC norms for banks on data updation
Banks will now be required to update KYC data only once in two years for high risk entities, and just once in 10 years for low-risk clients, RBI said.
"The issue has been reviewed in the light of practical difficulties/constraints expressed by bankers/customers in obtaining/submitting fresh KYC documents at frequent intervals as the relative documents submitted earlier specially by low- risk customers have remained unchanged in most of the accounts," the Reserve Bank said in a notification.
RBI has asked banks to exercise full KYC procedure at least every two years for high risk individuals and entities, from the earlier directive of not less than once in two years.
For low risk individuals and entities, the KYC data updation has been relaxed to at least every 10 years from the requirement of not less than once in five years earlier. For medium risk individuals and entities it has been relaxed to at least every eight years, from not less than once in two years. It said however that banks may continue carrying out on-going due diligence with respect to business relationship with every client.
Also, banks should closely examine transactions to ensure its consistency with their knowledge of the client, about their business and risk profile and, wherever necessary, the source of funds.
RBI further asked banks that positive confirmation regarding KYC norms through e-mail, letter, telephonic conversation and so on will be required to be completed at least every two years for medium risk and at least every three years for low risk individuals and entities.
Besides, it said banks will be required to get fresh photographs from minor customer on becoming major. "Banks may revise their KYC policy in the light of the above instructions and ensure strict adherence to the same," it said.
RBI has reduced the liquidity adjustment facility (LAF) for each bank from 1 percent of the total deposits to 0.5 percent, thus limiting the access to borrowed funds from the Central Bank. The limit will come into force with immediate effect and continue till further notice, the RBI added.