In a major move to deal with extra liquidity created in the system due to the demonetisation drive, the Central government as per the directions of the Reserve Bank of India raised the ceiling on Market Stabilization Scheme from Rs. 30,000 Crores to Rs. 6 Lakh Crores.
The Banks saw a huge surge in deposits after the withdrawal of legal tender character of Rs.500 and Rs. 1000 currency notes since November 09, 2016. This led to a significant increase in the liquidity in the banking system. This is expected to continue and thus the ceiling has been revised by the government as per the recommendations of Reserve Bank of India.
The hike in the ceiling will hold valid only for next 28 days. RBI will issue cash management bills CMB under MSS. Moreover, auction of 28-days Cash Management Bills of the Government of India was done using multiple price auction method. They were worth Rs. 20,000 Crores. CMBs have basic character of Treasury Bills.MSS Bonds are basically issued with the primary purpose of providing the Central Bank with a stock of securities which it can use to enter the market for management of liquidity. The Banks have also been directed by RBI last week to maintain an incremental CRR of 100 percent.
The money which is usually raised via this method is not used for governmental expenditures and are maintained in a separate account. Banks have been able to accumulate Rs. 10 lakh crores ever since the demonetisation, a part of which will go to the banking system to help the latter to cope up with the credit needs of the productive sectors of the economy.