ENA Sectors 2024-12-26 14:57:11 <p><span style="font-size:14px"><strong>Mumbai, Dec 26 (KNN)</strong> A new report by Reserve Bank of India (RBI) staffers reveals that banks have optimised their daily reserve maintenance following the implementation of the flexible inflation targeting (FIT) framework in 2016 and the automatic sweep in sweep out (ASISO) facility in 2020. </span></p> <p><span style="font-size:14px">This optimisation has freed up additional resources for productive deployment while reducing reserve maintenance volatility.</span></p> <p><span style="font-size:14px">The ASISO facility, introduced in August 2020, provides banks with enhanced flexibility in managing their day-end cash reserve ratio (CRR) balances. </span></p> <p><span style="font-size:14px">The system allows banks to pre-set specific amounts or ranges for end-of-day maintenance, with any deviations automatically triggering appropriate facility mechanisms, including marginal standing facility or standing deposit facility.</span></p> <p><span style="font-size:14px">Under India's banking regulations, reserves must be maintained on a fortnightly average basis, with a specified percentage required daily during this period. This structure enables banks to effectively manage their daily liquidity needs while responding to unexpected cash flows without creating undue market volatility.</span></p> <p><span style="font-size:14px">The report highlights that during the pre-FIT period, banks typically maintained reserves between 85 to 120 percent of requirements. This range has narrowed to 95-115 percent during the FIT period, with some exceptions. </span></p> <p><span style="font-size:14px">The study also notes that more banks now occasionally maintain reserves below 100 percent on certain days within the fortnight, indicating a more strategic approach to reserve management.</span></p> <p><span style="font-size:14px">The implementation of these frameworks has led to reduced volatility in daily excess reserves maintained by scheduled banks as a proportion of net demand and time liabilities. </span></p> <p><span style="font-size:14px">This improvement is attributed to refinements in liquidity management and monetary policy operating procedures. </span></p> <p><span style="font-size:14px">Banks can now choose optimal reserve holding strategies based on their intraday cash flows and money market participation, the report concludes, demonstrating the effectiveness of the RBI's modernised approach to banking regulation.</span></p> <p><span style="font-size:14px"><em><strong>(KNN Bureau)</strong></em></span></p> 40386 https://knnindia.co.in/news/newsdetails/sectors/fit-and-asiso-frameworks-boosts-bank-reserve-optimisation-rbi-report 2024-12-26 14:57:11 knnindia.co.in