India’s central bank extends scheme to fund mutual fund

October 15th, 2008 - 3:02 pm ICT by IANS  

Mumbai, Oct 15 (IANS) the Reserve Bank of India (RBI) Tuesday said the auction of bonds to release Rs.200 billion ($4.18 billion) toward the needs of mutual fund industry would be extended till such time it was fully subscribed.The central bank had Tuesday announced a special 14-day repo auction (repurchase of securities) at a coupon rate of nine percent for a notified amount of Rs.200 billion to enable banks meet the liquidity requirements of mutual funds.

“Banks utilized Rs.350 million of this facility on Oct 14,” said a statement by the central bank a day later, allocations will be made on a pro-rata basis when tenders exceed the notified amount amount of Rs.200 billion.

The banking regulator had earlier reserved the right to conduct such auctions - where government securities are bought back to release more cash into the financial system - depending on market conditions.

The move comes on the back of a cut of 150 basis points over the past week in the cash reserve ratio, or the minimum cash banks have to retain against deposit, which was estimated to free some Rs.600 billion for corporate credit.

The central bank also asked commercial banks not to withhold working capital requirement of small and medium enterprises, especially where the amounts were previously approved based on prudent norms and their creditworthiness.

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