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LAF to RRB
December 11 , 2020
1449 days
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- Recently, the Reserve Bank of India (RBI) has decided to extend liquidity adjustment facility (LAF) to Regional Rural Banks (RRB) to make liquidity management more efficient.
- At present, RRBs are not permitted to access the liquidity windows of the RBI
- The LAF was introduced in RBI in 1998 based on the recommendations of Narasimham Committee on Banking Sector Reforms.
- It is a monetary policy tool that enables banks to resolve temporary cash shortages through repurchase agreements or repos.
- RBI uses four tools to control the flow of liquidity in the country. They are
- Cash Reserve Ratio (CRR),
- Liquidity Adjustment Facilities (includes repo rate and reverse repo rate),
- Statutory Liquidity Ratio and
- Open Market Operations.
- The two main components of the Liquidity Adjustment Facility are Repo rate and Reverse Repo Rate.
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