15-12-2020 | 17:55 PM
Liquidity Adjustment Facility
Recently, the Reserve Bank of India (RBI) has agreed to expand the Liquidity Adjustment Facility (LAF) to Regional Rural Banks (RRB) in order to make liquidity management more effective.
The LAF was implemented in RBI in 1998 on the basis of the recommendations of the Narasimhan Banking Sector Reform Committee.
It is a monetary policy instrument that allows banks to address transient cash shortages by repurchase or rest agreements. It can also provide RBI loans by reverse-repos to collect funds.
Tools used by RBI to control liquidity:
RBI is using four instruments to monitor the flow of liquidity in the region. This includes Cash Reserve Ratio (CRR), Liquidity Modification Facilities (including repo rate and repo rate), Legislative Liquidity Ratio and Open Market Operations.
