Author: Nishtha Mehrotra | EQMint
India’s banking system is currently sitting on a large liquidity surplus, but the Reserve Bank of India expects much of the excess cash to be absorbed by the end of the financial year. RBI Governor Sanjay Malhotra said the surplus has averaged around ₹7.3 lakh crore, or nearly 2.7% of deposits, since the beginning of September.
The RBI bank liquidity surplus was created largely by around $144 billion in dollar inflows linked to one-off schemes coming to an end. Malhotra said the current surplus is temporary and that a large portion is expected to be absorbed within FY27.
The liquidity is likely to decline through natural factors such as currency leakage and banks’ reserve requirements. The RBI can also manage liquidity through variable-rate reverse repos (VRRR), open-market bond sales, foreign-exchange operations and other measures.
The central bank has already taken steps to absorb excess funds. In September, the RBI sold ₹1 lakh crore of government debt through open-market operations, taking its bond sales for the financial year to the highest level in more than a decade.
Market participants had expected a possible increase in the cash reserve ratio (CRR), but Malhotra said raising the CRR is among the RBI’s least-preferred methods of removing liquidity.
The liquidity outlook comes alongside the RBI’s decision to raise the repo rate by 25 basis points to 5.50% and shift its policy stance to “calibrated tightening”.
Disclaimer: This article is for information purposes only and is not investment advice.
For more such information, visit EQMint
Join our WhatsApp channel for timely updates: Whatsapp
