Banks To Get Intra-day Liquidity Under RTGS

Mumbai, March 28 | Updated: Mar 29 2004, 05:30am hrs
The Reserve Bank of India (RBI) will provide intra-day liquidity support to banks under its real-time gross settlement (RTGS) payment system. Banks funds requirement would increase in the RTGS environment.

The central bank would provide the intra-day liquidity support at free of cost. Internationally, barring US, no central bank charges for intra-day liquidity support RBI chief general manager-in charge (department of information technology) R Gandhi said on Saturday at an educative seminar on RTGS held in RBI. This is because, if central banks charge for this support, there is a possibility of another interest rate market to grow wherin players would falling over each other to offer intra-day liquidity support at a cheaper rate. We dont want this kind of situation. However, the RBI would review this at a later stage, Mr Gandhi added.

The RBI has also structured penalty rates if banks fail to pay back the intra-day liquidity support within that day. Banks have to pay interest rate which would be double of bank rate or double of the highest call money rate, whichever is higher.

The RBI is expecting around 30,000 transactions per day on the RTGS system with full fledged participation of all banks and customers. The central bank expects about 75-80 per cent of the total value of inter-bank settlements to route through RTGS, which has the capacity to handle one lakh transactions a day.

Currently, only inter-bank transactions are being conducted on the system, which went live on Friday with four banks. After tow weeks time, another 15-20 banks are expected to join the system.