RBI turns on liquidity tap for 3G,advance tax

With almost Rs 1,00,000 crore cash expected to go out of the system on account of the payments for third generation (3G) spectrum next week and advance tax in mid-June,which could result in liquidity crunch in the short-term, the RBI on Wednesday stepped in to provide more liquidity in the banking system. The RBI has allowed commercial banks to avail of additional liquidity support under the liquidity adjustment facility (LAF) to the extent of up to 0.5 per cent of their deposits net demand and time liabilities.

For any shortfall in maintenance of statutory liquidity ratio arising out of availment of this facility,banks may seek waiver of penal interest purely as an ad hoc,temporary measure. This facility will be available till July 2,2010, the RBI said. Telecom companies are required to pay around Rs 67,000 crore for the 3G spectrum in the next few days. Many companies have already tied up with banks.

According to the RBI,the latest assessment of liquidity conditions suggests that there could be temporary liquidity pressures in the market largely due to changes in government balances on account of advance tax payments and 3G auctions.