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RBI infuses liquidity as banking system faces highest deficit

September 22, 2023

RBI infuses liquidity as banking system faces highest deficit
The banking system neared ₹1.47 trillion of liquidity deficit on Monday, the highest since January 29, 2020, when the banking system liquidity deficit went up to ₹3 trillion.  

The Reserve Bank of India (RBI) injected ₹1.47 trillion on Monday and ₹1.46 trillion on Tuesday. Market participants believed that the disbursement of ₹25,000 crore as the second tranche of incremental cash reserve ratio (I-CRR) will not be enough, and the liquidity might tighten further to ₹2 trillion in short term due to tax outflows and arrival of the festival season.
 
“For now it looks like going into the festival season there would be more outflow and cash leakage from the system. It will lead to higher deficit for the banking system,” said Naveen Singh, head of trading and EVP at ICICI Securities Primary Dealership. “There are other factors at play. We are not seeing much dollar flows coming into the system and the RBI has been continuously defending from the other side. We are not seeing any inflow from the Fx (foreign exchange) side, and the RBI is not in the mood to add durable liquidity in the system. Gradually, the liquidity deficit might go up to ₹3 trillion, but not in the immediate future,” Singh said.
 
The banking liquidity is expected to remain under pressure at least until the end of September.  Market participants see the liquidity condition improving by the start of October.
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