FM offers more liquidity to banks

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Finance Minister P Chidambaram on Wednesday announced more measures to enhance liquidity in the system by allowing corporate to bring more money from foreign investors, releasing more cash for banks and taking steps to further strengthen banking system.

Chidambaram said RBI would immediately release Rs 25,000 crore to the commercial banks, cooperative banks and RRBs under the farm loan waiver scheme.

He also announced doubling of the investment limit to six billion dollars for foreign institutional investors in corporate bonds.

The series of announcements came on a day when stock markets tanked, with the benchmark Sensex losing 674 points, reversing the two-day winning streak.

Chidambaram, who along with RBI Governor had briefed the Prime Minister on Tuesday night on the measures taken so far while exploring the other options, said the measures so far have helped improve liquidity and it has been felt that more steps are needed.

"The government also decided to provide banks access to finance for raising their capital adequacy ratio to 12 per cent by a suitable date in the future from the current level of 10-12 per cent," Chidambaram said.

Identifying liquidity as the main problem which has constrained the financial system, the government also decided that RBI would immediately release to lending institutions the first installment against their outgo on farm debt waiver scheme.

RBI will provide Rs 7,500 crore to commercial banks and Rs 17,500 crore to NABARD as the first installment against the payment towards debt relief scheme.

The government is also issuing advisory to PSU banks to ensure easy draw-down against sanctioned limit so that banks can actively participate in inter-bank call money market, he said.

The minister said that SEBI has informed him that a hike in FII limit from 3 billion dollars to 6 billion dollars for corporate bonds would address any request for relaxation in the proportion of investment in equity and debt required to be maintained by an FII under current regulation.

There will be no requirement of providing collateral by financial institutions under farm debt waiver scheme, he said.