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New MSF to be tested during tight liquidity period: RBI

business Updated: Jun 06, 2011 19:59 IST

The Reserve Bank of India (RBI) expects the new marginal standing facility (MSF) to be tested during the tight liquidity period next week when banks and corporates pay their quarterly advance tax.

"Every quarter it (advance tax) happens. I don't think there is anything different in that. A new type of liquidity management facility has come, so it will be tested," RBI deputy governor K C Chakrabarty told reporters on Monday on the sidelines of an event here.

If, however, a problem arose, the system would have to adjust itself, he said.

The apex bank had introduced the MSF while unveiling the annual monetary policy, stating that banks can borrow upto one per cent of their total deposits from the Reserve Bank under the MSF facility at a rate, which is 100 basis points higher than the short-term lending (repo) rate.

Expressing concern over banks like SBI whose profits have dipped drastically after their chairman left, Chakrabarty said "books should not be as per the minds of the chairman, reporting should be as per books."

There is a need to improve both the standards of reporting as well as that of examination, he said.

"We have to improve the standard of reporting, the standard of examination. If in financial reporting you are not able to bring in the integrity, then how will you do it in non-financial reporting, that is the issue," he said, adding that the issue was a matter of "concern".

Chakrabarty's comments come at a time when the country's largest public sector lender State Bank of India's March quarter profits last fiscal dipped 99% to Rs 20.8 crore after the new Chairman took over.

When asked if RBI was also responsible for the problem of reporting standards, he said, "we are all collectively responsible. The issue is what went wrong and how do we improve the system...I don't think standard has any problem. Integrity of information is a problem, not the standard," he said.