12.8        ndian      onom
                In recent times, several changes have                 and provision of the term repo have
             been introduced by the RBI in this                       changed the very dynamics of this facility
             market. By April 2016, banks were                        after 2013.
             allowed to borrow only 1 per cent of               (iv) Market Stabilisation Scheme (MSS): This
             their NDTL (net demand and time                          instrument for monetary management
             liabilities, i.e., total deposit of the banks,           was introduced in 2004. Surplus liquidity
             in layman term) under overnight facility                 of a more enduring nature arising from
             at repo rate. For the rest of 0.75 per cent              large capital inflows is absorbed through
             of their NDTL, they may use the term                     sale of short-dated government securities
             repos of different tenors. In a sense, since             and treasury bills. The mobilised cash is
             late 2013, RBI has been discouraging                     held in a separate government account
             banks to use repo route and switch over                  with the Reserve Bank. The instrument
             to term repos for their requirements of
                                                                      thus has features of both, SLR and CRR.
             the short-term funds. Promoting stability
             and signalling better cost of loans are the         (v) Standing Deposit Facility Scheme (SDFS):
             main objectives of this changed stance.                  The new scheme has been proposed by
                                                                      the Union Budget 2018-19. Such a tool
        (ii) Open Market Operations (OMOs): OMOs
                                                                      was proposed by the RBI in November
             are conducted by the RBI via the sale/
                                                                      2015 itself. The scheme is aimed at
             purchase of government securities (G-Sec)
                                                                      helping RBI to manage liquidity in a
             to/from the market with the primary aim
             of modulating rupee liquidity conditions                 better way, especially when the economy
             in the market. OMOs are an effective                     is flush with excess fund (as was seen after
             quantitative policy tool in the armoury                  the demonetisation of the high value
             of the RBI, but are constrained by the                   currency notes post- November 2016).
             stock of government securities available
             with it at a point in time. Other than            Base rate
             the institutions, now individuals will also    Base Rate is the interest rate below which
             be able to participate in this market (the     Scheduled Commercial Banks (SCBs) will lend no
             decision was taken in 2017 while it is yet
                                                            loans to its customers—its means it is like prime
             to be implemented).
                                                            lending rate (PLR) and the benchmark prime
       (iii) Liquidity Adjustment Facility (LAF): The       lending Rate (BPLR) of the past and is basically a
             LAF is the key element in the monetary         floor rate of interest. It replaced17 the existing idea
             policy operating framework of the RBI          of BPLR on 1 July, 2010.
             (introduced in June 2000). On daily basis,
                                                                 The BPLR system (while the existing system
             the RBI stands ready to lend to or borrow
                                                            was of PLR), introduced in 2003, fell short of
             money from the banking system, as per
             the need of the time, at fixed interest rates  its original objective of bringing transparency to
             (repo and reverse repo rates). Together        lending rates. This was mainly because under
             with moderating the fund-mismatches            this system, banks could lend below BPLR.This
             of the banks, LAF operations help the          made a bargaining by the borrower with bank-
             RBI to effectively transmit interest rate      ultimately one borrower getting cheaper loan than
             signals to the market. The recent changes        17.   Reserve Bank of India, Announcement, 5 April, 2010
             regarding a cap on the repo borrowing                  (New Delhi: Government of India).