Bank stocks pare losses as RBI increase MSS limit

Shares of banking stocks on Friday inched up after the Reserve Bank of India decided to revise the ceiling for issue of securities under the Market Stabilisation Scheme (MSS) to Rs 6,000 billion (Rs 6,00,000 crore).

At 1340 hours, the shares of ICICI Bank were trading at Rs 262.10 per piece, up 1.06%, or Rs 2.75. The shares opened at Rs 258 touching a high at Rs 263.25 and low at Rs 256.10 per share.

HDFC Bank, which opened at Rs 1196 per piece and touched low at Rs 1178, at 1340 hours was trading at Rs 1199.40 per piece, up 0.28%, or Rs 3.35. However, the shares again dropped marginally.

Axis Bank which opened at Rs 465.90 per share and touched low at Rs 458.30, was trading at Rs 464.60, down 0.28%, or Rs 1.30. However, the share price declined marginally soon after.

Shares of Yes Bank were trading at Rs 1162 per piece, up 0.03%, or Rs 0.40.

In a release, the RBI said that the decision was made looking at the surge in the deposits with the banks post the demonetisation announcement.

On June 22, the RBI had said that under the MSS for the current fiscal was fixed at Rs 30,000 crore. That time, the apex bank had also mentioned that this ceiling will be reviewed when the outstanding balance reaches the threshold limit of Rs 15,000 crore.

What is MSS?

MSS is a tool used by the RBI to control the liquidity in the market via issue of securities (like bonds, treasury bills) on behalf of the government.

In early 2004, MSS was introduced by way of an agreement between the government and the RBI. Under the scheme, RBI issues bonds on  behalf of the government and the money raised under bonds is impounded in a separate account with RBI. The money does not go into the government account.

The bills/bonds issued under MSS would have all the attributes of the existing Treasury Bills and dated securities. The bills and securities will be issued by way of auctions to be conducted by the Reserve Bank. The Reserve Bank will decide and notify the amount, tenure and timing of issuance of such treasury bills and dated securities.

That time in 2004, RBI had said, "The bills and securities issued for the purpose of MSS would be matched by an equivalent cash balance held by the Government with the Reserve Bank. Thus, there will only be a marginal impact on revenue and fiscal deficits of the Government to the extent of interest payment on bills/securities outstanding under the MSS. Further, the cost would be shown separately in the Budget. This would add transparency to the cost of sterilisation".