RBI asks Lehman not to operate without approval

Mumbai: The Reserve Bank of India (RBI) announced late on Tuesday evening that it has asked Lehman Brothers' Indian primary dealership and non-banking financial arm not to undertake any transactions in India and abroad without prior approval.

According to a statement issued by RBI, it has directed Lehman Brothers Fixed Income Securities, a primary dealer, not to undertake transactions in government securities as a primary dealer in the primary market.

"Further, it has advised not to declare any interim dividend or remit any amount to its holding company or any other group company without the prior approval of RBI," said the statement.

It also said the non-banking financial company (NBFC) Lehman Brothers Capital Pvt. Ltd would need prior approval of RBI before contracting any direct or indirect liability from any institution in India or outside India or making any foreign currency remittance.

Lehman Brothers Holdings Inc filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code on Monday.

Meanwhile, the RBI has announced on Tuesday evening that it would alleviate transient pressures on the local market by temporarily relaxing rules on securities used for liquidity operations.

According to a statement released by RBI, "The recent extraordinary global developments triggered by the bankruptcy, sell-out and restructuring of some of the world's largest financial institutions have resulted in severe disruptions of international money markets, sharp declines in stock markets across the globe and extreme investor aversion.

The RBI said, "Several central banks and financial regulators have responded with both unusual and unconventional measures to facilitate the orderly operation of financial markets and to ensure financial stability."

To ease these pressures, it has decided to take a series of measures to ensure cash flow in both the local money market and the Forex market.

The bank will also function second money market on daily basis between 4-4.30 pm compared to every Friday till now.

RBI will also allow banks to acquire additional liquidity up to one per cent of their deposits, in addition to the normal method of borrowing funds. Both liquidity measures take effect from Wednesday.