LIC IPO: RBI gears up to tackle cash crunch

MUMBAI/NEW DELHI: The RBI is looking to use the new liquidity adjustment framework to manage liquidity in the system due to the mega LIC initial public offer (IPO). Over the next few weeks, banks could see a surge in deposits from potential subscribers, which would be followed by Rs 65,000-70,000 crore cash going out of the system. Adding to this volatility will be some dollar flows from overseas.
Sources said that last month, the RBI conducted periodic repo operations to tide over the cash crunch caused by high GST payments by businesses. A similar strategy may be deployed during the country’s largest public issue. By all accounts, the sale of 5% shares by the government, which may be at over Rs 2,000 a share, will drain out cash from the system towards the end of the financial year. Mid-March is also the time when money markets face their worst cash crunch as advance tax payments…

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