..........The RBI is trying to curb the steep fall in rupee by mopping up excess liquidity. The intent is to reduce the excess liquidity which banks seem to be using for taking speculative position in the exchange markets. However, a prolonged money tightening policy will hurt both banks and the industry. If these measures continue for more than three months, then banks will be forced to raise lending rates due to higher cost of funds. This will in turn lead to more stress in asset quality for the entire sector. Also, banks will witness significant treasury losses in the September quarter, on their marked-to-market portfolio of SLR (statutory liquidity ratio) investments.......................
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