According to money market experts, the rollback of measures will result in an outflow of about Rs 4,500 crore as vault cash will become ineligible for CRR purposes. However, the outflow will be counter-balanced by the huge inflow of over Rs 6,000 crore expected to come into the system in the next two week.

The fortnight will witness coupon flows of Rs 1,875 crore and government security redemption of Rs 3,000 crore. "Liquidity will be tested this week as the Y2K measures lapse," money market dealers said. Overall liquidity will remain comfortable during the reporting fortnight as inflows over Rs 5,950 crore will come into the system against an outflows of Rs 5,500 crore.

"However, liquidity could come under stress if there is a government security auction," money market dealers said. Liquidity is expected to remain comfortable till the end of February as the system will witness gross inflows of over Rs 10,000 crore, which appears to be comfortable even in the case of a government security auction during the month. In the October credit policy, RBI governor Bimal Jalan had announced a `Y2K contingency plan' for a two-month period beginning December 1, 1999, for smooth bank transactions for any mishap arising out of Y2K problem and smooth transition into the fiscal 2000.

The central bank had put in place a special two-month liquidity support for banks on their excess holding of government papers.

The liquidity support, in addition to the existing collateralised lending facility, was made available from December 1, 1999 to January 31, 2000 at 2.5 per cent over bank rate (10.5 per cent). The measure generated around Rs 4,500 crore worth of liquidity-equivalent to a 0.65 per cent reduction in bank's cash reserve ratio (CRR). According to money market sources, the banking sector currently holds around Rs 60,000 crore of excess securities of which around Rs 15,000 crore worth SLR securities would be required as a collateral against other refinance facilities.

The banks not holding adequate excess government securities were encouraged to have standby liquidity arrangement with those banks which were eligible for the `special liquidity support'. The apex bank had provided a further fillip to the Y2K measures by permitting the non-interest earning SLR cash-in-hand of the banking system to be eligible for CRR for the two month period.

For operational convenience, the apex bank had also provided a two-week lag for the maintenance of CRR. RBI had also permitted foreign banks to have a contingency funding line from their overseas head-offices even if they have outstanding borrowings from RBI, banks, financial institutions in India.