Centre signs agreement with RBI to amend MSS scheme

Written by fe Bureau | Mumbai | Updated: Mar 1 2009, 05:29am hrs
Even as the Reserve Bank of India met top bankers to discuss rate cut, sticking to its earlier commitment not to pressurise the markets for its extra borrowings, the government struck deals with the Reserve Bank of India on Friday to receive Rs 45,000 crore of market stabilisation funds in installments by March 30.

An equivalent amount of the government securities issued under the MSS would now form part of the normal market borrowing of the Centre.

Accordingly the earlier MoU signed in March 25, 2004 on the MSS), between both of them has been amended to give effect to the new one. The amendment to the MoU enables on mutual agreement between the Centre and the Reserve Bank, the transfer of a part of the amount in the MSS cash account to the normal cash account as part of the Centres market borrowing programme for meeting the governments approved expenditure. However, bankers after meeting the RBI governor, D Subbarao said they will keep a watch on the bond rates before deciding to reduce the rates further.

We will keep a watch on the bond rate movement to take any decision on the rate cut. We discussed what is happening in the economy and how the banks are coping up with dropping of interest rates and how do we go forward, said managing director & CEO, ICICI Bank KV Kamath. The yield on the 10 year, 8.24% note due April 2018 fell by 17 basis points to 6.34 %. The 10-year paper had fallen below 6% but again rose after the government announced excess government borrowing programmes to raise resources for executing series of stimulus packages to tackle slow down in the economy.

The economic growth has further fallen 5.3 % during Oct-Dec quarter from a 7.6 % gain in the previous quarter. Chairman and managing director UCO Bank SK Goel said the banks want deposit rates to be reduced which may not be possible immediately.

Subbarao met top bankers including State Bank of India chairman OP Bhatt, ICICI Bank MD and CEO KV Kamath, Punjab National Bank CMD KC Chakraberty and others to discuss bank lending and other related issues at the central banks headquarters in Mumbai.

Of late, there has been a pressure from the RBI and the government on banks to cut rates to spur demands with a view to arrest economic slow down.

The RBI has cut its repo rates by 350 basis points and pumped in cash in the banking system to help banks to reduce rates and provide resources to India Inc.