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1.RBI last week allowed banks to classify an additional 2% of the value of their SLR investments in the government bonds as high-quality liquid assets (HQLAs).
Important Facts:
- What are SLR, CRR and LCR?
- These policy tools (SLR, CRR, LCR) are used by RBI to influence amount of reserves held by bank and in turn, influence the amount of loans that bank extend to borrowers. This helps in regulating liquidity/ money supply and eventually helps regulate inflation.
Impact of RBI tightening the liquidity
- Banks are forced to cut down lending and thereby money supply in the economy shrinks.
High-quality liquid assets (HQLAs)
5.HQLAs are the assets that can be easily converted into cash.
6.Classifying extra 2% of the SLR investments in government bonds as HQLA can increase bank’s lending capacity and increase the liquidity in the economy.
7.The recent move can infuse Rs. 2.5 lakh into the economy.
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