Use of Liquidity Adjustment Facility (LAF) for On-lending
There have been some enquiries regarding RBI's indication that, inter-alia, resources accessed from the Reserve Bank's LAF window should not be used for on-lending by banks.
In this context, RBI has clarified that the intent of this advice is that the recourse to LAF by market participants should not be persistent in order to fund balance sheets for credit needs of customers, but banks can utilize the funds borrowed under this facility for inter-bank lending. Such, inter-bank lending is part of normal money market functioning that enables daily liquidity management by market participants having temporary mismatches.
For full RBI notification dated 2nd March 2007 on modified arrangements for LAF and MSS to manage liquidity
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