Economics · Banking and Monetary Policy
A large Private Sector Bank, 'Modern Bank Ltd,' is facing temporary liquidity stress due to sudden withdrawals. It needs to maintain its Cash Reserve Ratio (CRR) with the RBI. The bank's Capital Funds stand at ₹10,000 crore, and its current borrowing in the Call Money market is ₹8,000 crore (which is near its regulatory average limits). Given the regulatory framework, which of the following is the most prudent and compliant strategy for the bank to manage its liquidity for the next 48 hours?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Sell 91-day T-Bills in the secondary market to raise immediate cash, as this will not impact its SLR maintenance.
- 2Utilize the MSF window by pledging its SLR securities up to the permitted limit, as its Call Money borrowing is already near the average limit.✓
- 3Issue CDs worth ₹2,000 crore with a maturity of 5 days to meet the immediate CRR requirement.
- 4Borrow an additional ₹5,000 crore from the Call Money market to avoid the higher cost of MSF.
Correct answer
Utilize the MSF window by pledging its SLR securities up to the permitted limit, as its Call Money borrowing is already near the average limit.
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