The institutions will mop up the rupee proceeds of the Resurgent India Bonds (RIBs) by privately placing these instruments. Some of the banks will, however, be required to raise their exposure limits to financialinstitutions to be able to subscribe to these bonds.

The issue was discussed threadbare at a meeting of bankers with the Reserve Bank of India brass on Saturday. The meeting explored all possibilities of providing the collecting banks to the Resurgent India Bond issue with a temporary parking facility of their excess liquidity against the backdrop of a sluggish credit offtake.

The State Bank has raised $4.17 billion through the triple-currency five-year instrument and about $3 billion worth of RIB proceeds has already been swapped with the Reserve Bank for rupeefunds. In effect, Rs 13,000 crore worth of liquidity has been injected into the system. The RBI has sucked out over Rs 6,000 crore from the system by raising banks' cash reserve ratio (CRR) by one percentage point with effect from August 29.

At the meeting held with representatives of banks and financial institutions, the RBI brass once again reiterated the central bank's stance: banks should not use the excess liquidity to punt on the rupee. In an attempt to prevent banks from arbitraging between the money and forex markets, the RBI has directed them to submit daily their nostro positions, overnight positions and monthly maturity mismatches.

The RBI asked banks to use all existing avenues -- fixed-rate repo, treasury bills and the central bank's window for open market operations -- to park excess funds.

It has also hinted at working out some sort of refinance facility for banks against their investment in treasury bills to offer them a liquidity cushion in case they (banks) find it difficult tooffload their holdings in the secondary market to meet infrastructure credit demands.

Representatives of financial institutions present at the meeting showed keenness in privately placing infrastructure bonds with banks. However, no consensus was reached on the coupon rate of such bonds. Since the cost of money for banks works out to 9.5 per cent (the rate at which State Bank will offer the rupee funds to banks which collected the RIB proceeds), institutions want to place the five-year bonds at a cheaper rate while the banks are looking for a coupon close to their prime lending rates.

The prime rate of public sector banks at present varies between 13.5 per cent and 14.5 per cent. According to sources in State Bank, institutions will place between Rs 1,500 crore and Rs 2,000 crore with it at a sub-PLR rate. State Bank has decided to keep 25 per cent of the RIB proceeds abroad while 36 per cent is being used to meet the statutory pre-emptions like statutory liquidity ration (SLR) and CRR.