Technical glitch halts RBI’s liquidity management system: Explained
A technical glitch disrupted the Reserve Bank of India’s (RBI) banking system on Tuesday, disabling the mechanism that allows lenders to manage their daily liquidity needs, a Reuters report said. This was the first significant failure since the system was introduced almost four years ago.
The RBI, which publishes its money market transaction statement every morning around 9 am, detailing the liquidity position of the banking system, had not done so even by 10.45 am on Wednesday.
What was the technical problem?
Indian banks are required to deposit 4.5 percent of their net deposits with the central bank and must maintain a minimum of 90 percent of this requirement on a daily basis. The marginal standing facility (MSF) offers banks the opportunity to access central bank funds in times of liquidity shortages.
The Automated Sweep-in and Sweep-out System (ASISO), which facilitates banks in parking money with the RBI’s standing deposit facility and borrowing from the Marginal Standing Facility (MSF), experienced a glitch. As a result, transactions meant to debit or credit funds through the RBI were not processed.
The technical glitch prevented the ASISO facility in e-kuber, which is automatically activated around midnight, from operating, Reuters said.
What is the ASESO system?
The automated sweep-in and sweep-out or SISO system is an essential part of liquidity management for banks in India. The system automates the process of managing bank liquidity.
It was introduced in 2020 in response to the disruptions caused by Covid-19 and to optimize workforce utilization by providing eligible participants with greater flexibility in managing their end-of-day cash reserve ratio (CRR).
Participants can set or change their end-of-day checking account balance limits on all real-time gross settlement (RTGS) business days between 9:00 a.m. and 11:30 p.m. These limits may be specified as maximum and minimum balances (in rupees crore) related to the Liquidity Adjustment Facility (LAF) and MSF operations.
With the SISO system, banks can:
Park excess money: Deposit excess funds into the RBI’s revolving deposit facility.
Borrow money: Access funds through MSF when liquidity is low.
How does the SISO system work?
The ASISO follows a ‘sweep-in’ and ‘sweep out’ system, which means:
Sweep-in: Transfers the excess funds from the bank’s account to the RBI’s facilities at the end of the day.
Sweep-out: Returns funds to the bank’s account from the RBI’s facilities, if required for the next day’s activities.
What does the SISO system influence?
The SISO system affects three main components:
- Liquidity management: Ensures that banks manage liquidity efficiently, maintain required reserves and access funds when necessary.
- Daily operations: Facilitates smooth daily banking operations by automating money transfers.
- Regulatory compliance: Helps banks meet RBI liquidity requirements.
End of day operations on the SISO system
If a bank’s current account balance falls below the set minimum balance, the system will automatically trigger an offer from MSF for the difference, rounded up to Rs 1 crore. If there are insufficient collateral in the bank’s Repo account, MSF’s bid amount will be reduced accordingly.
If a bank’s current account balance exceeds the set maximum balance, the system will automatically trigger a Reverse Repo Offer for the difference, rounded down to Rs 1 crore.
No bids will be triggered if the current account balance is within the specified range.
These limits will remain in effect unless changed and apply every day, including Sundays and RTGS holidays. Participants may disable the SISO facility before 11:30 PM on any RTGS business day if they choose not to use it.
What is the impact of an ASESO system failure?
Banks faced disruptions in their daily operations as no funds were debited or credited. Additionally, as banks were unable to complete their end-of-day transactions, there is potential non-compliance with the RBI’s liquidity requirements, which could lead to penalties.
The lack of publication of liquidity data can also cause uncertainty in financial markets.
First print: June 12, 2024 | 2:38 PM IST