The Reserve Bank of India on Friday said it will undertake a secondary market government securities acquisition programme or G-SAP 2.0 worth Rs 50,000 crore in two tranches this month to enable an orderly evolution of the yield curve. “Our recent G-SAP auctions that have focussed on securities across the maturity spectrum are intended to ensure that all segments of the yield curve remain liquid,” RBI Governor Shaktikanta Das said while announcing the third bi-monthly monetary policy.
The Reserve Bank’s secondary market G-sec acquisition programme (G-SAP) has been successful in anchoring yield expectations while eliciting a keen response from market participants, he noted. “We propose to conduct two more auctions of Rs 25,000 crore each on August 12 and August 26, 2021, under G-SAP 2.0. We will continue to undertake these auctions and other operations like open market operations (OMOs) and operation twist (OT), among others, and calibrate them in line with the evolving macroeconomic and financial conditions,” he said.
Under the revised liquidity management framework announced on February 6, 2020, the Reserve Bank has been conducting 14-day variable rate reverse repo (VRRR) auctions as its main liquidity operation. With the commencement of normal liquidity operations, the VRRR, which was temporarily held in abeyance during the pandemic, has been re-introduced from January 15, 2021, and the initial absorption of Rs 2 lakh crore has been rolled over in the subsequent fortnightly auctions, Das said.
In parallel, access to the fixed-rate overnight reverse repo has been kept open, he said, adding markets have adapted and even welcomed the VRRR in view of the higher remuneration it offers relative to the fixed-rate overnight reverse repo. “Fears that the recommencement of the VRRR tantamount to liquidity tightening have been allayed. We have seen a higher appetite for the VRRR in terms of the bid-cover ratio in the auctions,” he noted.
Considering all these aspects, it has now been decided to conduct fortnightly the VRRR auctions of Rs 2.5 lakh crore on August 13, 2021; Rs 3 lakh crore on August 27, 2021; Rs 3.5 lakh crore on September 9, 2021; and Rs 4 lakh crore on September 24, 2021, he said. “These enhanced VRRR auctions should not be misread as a reversal of the accommodative policy stance, as the amount absorbed under the fixed-rate reverse repo is expected to remain more than Rs 4.0 lakh crore at the September-end 2021. Needless to add that the amount accepted under the VRRR window forms part of system liquidity,” he said.
On additional liquidity measures, the governor said the scope of the on-tap TLTRO scheme, initially announced on October 9, 2020, for five sectors, was further extended to the stressed sectors identified by the Kamath Committee in December 2020 and bank lending to NBFCs in February 2021. The operating period of the scheme was also extended in phases till September 30, 2021. Given the nascent and fragile economic recovery, it has now been decided to extend the on-tap targeted long-term repo operation (TLTRO) scheme further by a period of three months till December 31, 2021, he said.
On March 27, 2020, he said, banks were allowed to avail of funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e. cumulatively up to 3 per cent of NDTL. To provide comfort to banks on their liquidity requirements, including meeting their Liquidity Coverage Ratio (LCR) requirement, this relaxation which is currently available till September 30, 2021, is being extended for a further period of three months, up to December 31, 2021. This dispensation provides increased access to funds to the extent of Rs 1.62 lakh crore and qualifies as high-quality liquid assets (HQLA) for the LCR.