The Silicon Review ^Asia

The Reserve Bank of India (RBI) has made an announcement that it will add new funds to the banking system in November. The announcement was made public on Friday.

In order to tackle cash shortage and control debt market rates, RBI will inject Rs.40,000 crore in the banking system through Open Market Operations (OMO).

According to RBI, in November, the central banking institution will purchase government securities under OMO for an aggregate amount of Rs.400 B.

In the past three weeks, the banking system has faced a shortage of cash. According to reports, the daily liquidity deficit has been fluctuating between Rs. 87,500 crore - Rs. 1 lakh crore. And last Monday, the liquidity deficit touched Rs.1.4 lakh crore.

There are many reasons for cash shortage. One of the primary causes that have contributed towards the problems is RBI’s currency intervention; it has also resulted in the tightening of banking system liquidity with the central bank’s dollar sales injecting more rupees into the system.

There are some other factors like withdrawing money in the festive season by the public and monthly outgoes of taxes have contributed towards the money problem.

RBI will invest Rs.36,000 crore for purchasing OMO this month.

The financial system requires refinancing of CP’s (commercial papers) is due in the near term despite seasonal bump in cash circulation.