India’s banking system has returned to surplus liquidity for the first time in three months, thanks to sustained interventions by the Reserve Bank of India (RBI) and improved market conditions.
Liquidity Surplus Returns in March
According to data, the banking system’s liquidity stood at a surplus of ₹89,399 crore on March 30, rising from ₹71,672 crore a day earlier. This marks the first surplus since December 15, when the figure stood at ₹33,533 crore. At the start of December 2024, liquidity was as high as ₹1 lakh crore before turning deficit.
RBI Interventions Ease Pressure
The RBI’s aggressive interventions — including a ₹1.5 lakh crore liquidity support package announced in January — are now showing results. The package involved open market purchases of government securities, variable rate repo auctions, and dollar-rupee swap operations. In total, the RBI has infused over ₹5 lakh crore into the banking system over the past three months.
The RBI had stepped in as foreign institutional investors (FIIs) sold Indian shares worth $25 billion in the latter half of FY25, putting pressure on the rupee. The central bank responded by selling dollars to stabilise the currency, which had strained liquidity. Simultaneously, tax outflows from advance tax and GST payments further tightened liquidity in recent months.
Government Spending and FII Flows Aid Recovery
The turnaround in liquidity has also been supported by an uptick in government spending and renewed interest from FIIs, who have become net buyers in Indian equities in recent weeks. Analysts anticipate further improvement in liquidity conditions in the April–June quarter, helped by the RBI’s expected dividend transfer of over ₹2 lakh crore to the government.
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Rate Cuts on the Horizon?
The return of surplus liquidity could pave the way for softer lending rates, with analysts predicting two more repo rate cuts — totaling 50 basis points — during the current financial year. The RBI initiated its rate-cutting cycle with a 25-basis-point cut in February and is widely expected to announce the next cut in April.
