Lukewarm response from banks to the special short-term lending (repo) facility today prompted the Reserve Bank to extend the scheme till Rs 20,000 crore (Rs 200 billion) is fully subscribed for on-lending to mutual funds.
"The 14 days special facility will now be conducted everyday until further notice up to a cumulative amount Rs 20,000 crore for the same purpose," RBI said.
The facility introduced for a day generated limited response as only bids worth Rs 3,500 crore (Rs 35 billion) from banks and primary dealers were received by the RBI on Tuesday.
In view of the poor response, the RBI announced the decision to extend the validity period of the scheme without indicating any time frame.
The special window was introduced with the objective of providing liquidity to the mutual fund industry facing redemption pressure on account of withdrawal from their debt instruments and money market instruments.
RBI said in a notification that the residual amount will be notified every day till further notice.
The central bank will now auction Rs 16,500 crore (Rs 165 billion) to the eligible banks and primary dealers.
"The eligible banks and primary dealers may submit their applications electronically through National Negotiated Dealing system between 2.30 pm to 3.15 pm today," it said.
Welcoming the decision on the special window, Finance Minister P Chidmabaram had said, "Government has been informed by the mutual fund industry that against their borrowings from the banks they will give as security mainly certificate of deposits of the bank themselves."
Mutual fund industry had sought a facility for accessing funds and "consequently, the government requested the Securities and Exchange Board of India and Reserve Bank of India to meet today and address the issue," he had said.
"The Reserve Bank will issue a press release each day mentioning the cumulative utilisation by banks and PDs under the facility, the notified amount and the tenor for the next day's auction," the notification said.
The settlement for the special repo would be conducted separately and on gross basis, it added.
The RBI further said that this facility would be in addition to repo/reverse repo auctions conducted Liquidity Adjustment Facility and Second Liquidity Adjustment Facility.
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