(Updates with quote, details, background)
By Suvashree Choudhury
MUMBAI Nov 30 The Reserve Bank of India will
allow banks to use all their cash to meet the central bank's new
cash reserve ratio requirements, not just a certain amount of
the money, in a technical but important move that could provide
relief to the country's banks.
The RBI on Saturday had ordered banks to put all the
deposits they accumulated between mid-September and mid-November
under the central bank's cash reserve ratio. The banks had been
flooded with deposits after the government banned larger bank
That created problems for banks. Under India's complicated
rules for cash holdings, only a certain amount of the cash they
hold in their vaults is eligible to be placed under cash reserve
Those issues should now be resolved. The RBI in a statement
on Wednesday widened the criteria for cash that can be included,
including all the 500- and 1,000-rupee notes the government
abolished this month.
"In the wake of deposits of specified bank notes in massive
quantity and accumulations thereof, the above instructions have
been revisited," the RBI said.
The move triggered a big rally in banking shares as well as
Investors had worried that banks would have to scramble to
get the cash required to place with the RBI under the more
stringent cash reserve ratio requirements.
The 10-year benchmark bond's yield fell 8
basis points to 6.24 percent on Wednesday, erasing almost all
the losses on Monday after the RBI's announcement. The yield
rose as much as 15 bps to 6.34 percent then.
The RBI said it will review the decision in the second half
For RBI statement see bit.ly/2gjpZlK
(Editing by Rafael Nam, editing by Larry King)