RBI ready to Cope Huge Cash flow for 3G spectrum Bids

The Reserve Bank of India (RBI) will keep liquidity ready to support the banking system cope with huge cash outflows following the just-concluded third- generation spectrum auction, its top officials said on Thursday.

The auction, that lasted 34 days, will generate USD 14.6 billion for the government, nearly double what it had earlier expected.

"I want to assure you that we are taking into account... we are monitoring the liquidity situation," RBI Governor Duvvuri Subbarao said after a central bank board meeting in Thiruvananthapuram.


Data released by the RBI last Friday had showed the federal government had borrowed Rs 19368 crore (USD 4.1 billion) from the central bank via a short-term overdraft facility in the week to May 7, down from Rs 28868 crore in the previous week.

Banks could borrow via the central bank's daily reverse repurchase auction window to tide over any difficulties because of cash outflows towards the 3G auctions, one of the deputy governors said.

"RBI has assured the (banking) system that adequate liquidity will be maintained. If banks need repo facility they can borrow from the RBI," said Deputy Governor Shyamala Gopinath.

"Banks do have excess SLR," she said referring to the central bank's statutory liquidity ratio, which requires banks to keep at least 25% of their deposits in government securities.

The banking system will also see outflows towards quarterly advance taxes by corporates in mid-June.

Subbarao did not provide any details about specific steps that the central bank might adopt to manage liquidity. He also did not comment on whether government borrowing would be reduced because of the higher-than-expected 3G auction proceeds.

Subbarao said the central bank had not yet fully exited from its accommodative monetary stance. "We have begun policy exit, we have to traverse down that line," he said.

Separately, the central bank chief said the Greece crisis may have some impact on India's trade and services exports, but will not likely affect capital flows.

"Europe accounts for about 27% of India's trade, so if Europe has a setback towards its recovery process... it will have an impact on our trade. More importantly, it might have an impact on services exports," Subbarao said.

"We do not see much of an impact in base case scenario on financial flows and overall sentiment. If there is turbulence in international markets, there will be some knock-on impact here, but that I think will be transient and marginal."