Mumbai/Delhi, Oct 15: The banking system received another cash injection of Rs 65,000 crore today.

The windfall came after the Reserve Bank of India trimmed the cash reserve ratio (CRR) by another percentage point to 6.5 per cent and finance minister P. Chidambaram ordered the release of Rs 25,000 crore to meet a part of the costs of the farm loan waivers in June.

The third CRR cut in the last 10 days will give banks access to a cash trove of Rs 40,000 crore. The cut will take retrospective effect from October 11.

CRR is the portion of bank deposits that must be maintained with the central bank. A cut in CRR raises the lendable resources of banks.

On October 10, the central bank reduced CRR by one percentage point. Earlier, on October 6, it had announced a 50-basis point cut in the reserve ratio. The two cuts had injected Rs 60,000 crore into the system.

Earlier in the day, in an unprecedented move, the RBI said it would hold a special repo auction every day till the banks raised Rs 20,000 crore that is needed to fund the bailout plan for mutual funds. Banks had raised only Rs 3,500 crore under this facility which opened on Tuesday.

The central bank opened up another cash chest to buttress the mutual fund bailout plan by permitting banks to dip into their deposits locked up as statutory liquidity ratio (SLR) to the extent of another half a percentage point.

The cut effectively lowers SLR — a percentage of deposits that banks must park in government securities — to 23.5 per cent.

One reason for lowering this ratio was the fact that several banks had SLR deposits that hovered close to the current level of 24 per cent which was set in September.

The finance minister and the RBI acted in tandem to boost the liquidity of the financial system.

While Chidambaram announced that the investment limit of foreign institutional investors in corporate bonds was being doubled to $6 billion, the Reserve Bank threw a bait to lure funds from non-resident Indian (NRI) investors.

The FIIs dumped stocks when the credit crisis hit global markets. Efforts are now being made to lure their money into corporate bonds.

The central bank raised the interest rate ceiling on FCNR(B) deposits by 50 basis points. Earlier, the rate was capped at 25 basis points below the London Inter-Bank Offered Rate (Libor). It has now been raised to 25 basis points above Libor.

The RBI also allowed banks to borrow funds from their overseas branches up to a limit of 50 per cent of their core capital. Analysts said the move would reduce the banks’ dependence on the markets.

Chidambaram said the cash injection of Rs 25,000 crore was being made against farm loan waivers amounting to Rs 71,000 crore. Nearly 4 million small and marginal farmers had benefited under the scheme.

He said the RBI would provide Rs 7,500 crore to commercial banks and Rs 17,500 crore to Nabard as the first instalment against the payment towards debt relief scheme.

There will be no requirement of providing collateral by financial institutions under the farm debt waiver scheme, he said.

“(Market regulator) Sebi has informed me that it will address any request for relaxation in the proportion of investment in equity and debt required to be maintained by an FII under current regulations,” Chidambaram said.

Ibsa stand

With a financial crisis gripping the developed world, India, Brazil and South Africa (Ibsa) today said those responsible should be held “accountable and liable”.

In an effort to ensure that the impact on them is minimum, the three countries decided to convene a meeting of their finance ministers and governors of central banks to evolve a joint strategy.

Addressing a joint press conference with the Presidents of Brazil and South Africa after the summit, Prime Minister Manmohan Singh said, “We are meeting against the backdrop of an international financial crisis. Our voice on how to manage this crisis in a way that does not jeopardise our development priorities needs to be heard in international councils.”