According To RBI, banks would not be penalised for any shortfall in statutory liquidity ratio between November 9 and December 16. Banks are required to invest 25 per cent of their net demand and time liabilities in government bonds and other approved securities under SLR. This is an "ad hoc, temporary measure",the central bank said.

Inter-bank call money rates, which were at 7.40-7.50 per cent — higher than the repo rate of 6.25 percent — cooled to close at 6.7 percent after RBI’s measures. Net borrowing by banks, which was Rs 1.10 lakh crore from RBI’s first repo tender on Tuesday, came down to Rs 6,825 crore in the second LAF.

"Liquidity is tight at the moment," said Deepak Parekh, chairman of HDFC. "It will start easing as money comes into the system. The tightness is only for some time," he added.

Still, bankers say the current conditions reflect a mismatch in liquidity more than a cash crunch. "If one looks at investment by banks in government bonds in excess of minimum SLR requirements, it will not show there is a liquidity squeeze in the system," said a senior official at a large, state-run bank in Mumbai.