RBI will soon review extra CRR as govt issues adequate MSS bonds - report

Last Updated: Sun, Nov 27, 2016 19:20 hrs
RBI Governor Patel speaks during a news conference after the bi-monthly monetary policy review in Mumbai

MUMBAI (Reuters) - The Reserve Bank of India (RBI) will review its decision asking banks to deposit their extra cash with it once the government has issued an adequate quantum of market stabilisation scheme bonds to soak up liquidity, Governor Urjit Patel told the Press Trust of India on Sunday.

On Saturday, RBI unexpectedly ordered banks to boost cash deposits with the RBI, in a bid to absorb excess liquidity generated by a government ban on larger notes. The move will drain over 3.24 trillion rupees ($47.29 billion) from the banks, according to Reuters estimates.

The govt has budgeted 200 billion rupees towards market stabilisation scheme in the year to March 2017 which analysts say will need to be increased substantially to drain out surplus cash flowing in to banks due to the note replacement scheme.

Patel told the news agency that the RBI was monitoring the situation arising out of a sudden withdrawal of 500-rupee and 1,000-rupee notes on a daily basis, according to the PTI report seen on the Mint newspaper's website. (http://bit.ly/2fEZiHs)

"While the RBI has a significant stock of government securities available, we felt that if the increase in deposits continues we may fall short, hence the decision," Patel told PTI, according to the report. "Once the government issues adequate quantum of MSS bonds, which they have promised to, we will immediately review."

($1 = 68.5085 Indian rupees)

(Reporting by Devidutta Tripathy; Editing by Euan Rocha)

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