RBI Steps In with Nearly Rs 1.9 Lakh Crore Infusion Amid Liquidity Crunch

The Reserve Bank of India (RBI) on Wednesday announced new measures to infuse nearly Rs 1.6 lakh crore in the banking system by end of FY25 to ease liquidity. This came amid tax outflows and when banks are rushing to meet their targets.

The central bank in a statement said that the measures, purchase of government bonds under open market operations (OMO) and foreign currency swaps, taken on a review of current and evolving liquidity conditions.”

The RBI will purchase government securities worth Rs 1 lakh crore in two tranches of Rs 50,000 crore each under OMO auctions. The auction will take place on March 23 and March 18.

On the other hand, the bank regulator will also hold a buy/sell dollar/rupee currency swap auction of $10bn on March 24 for a 36-month tenor.

"The total injection of Rs 1.87trn is a positive surprise and above market expectations," Nomura's Global Market Research said.

"Markets should start pricing in a lower MIBOR-repo spread and the possibility of MIBOR trading below repo rates is growing," it noted.

The central bank asserted that it will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions.

Liquidity Concerns

Liquidity in the banking system dropped to a deficit of Rs 65,000 crore in December last year from Rs 1.35 lakh crore in the previous month. It then fell to Rs 2.1 lakh crore in January this year but slightly improved to around Rs 1.6 lakh crore in February.

The persistent liquidity crunch in the banking system has led to a cash crunch for lenders. Even though the central bank cut the repo rate after 5 years in the last month by 25 basis points, there has been no significant transmission.

A recent SBI report highlighted that if ownership in government securities (G-secs) remains unchanged in FY26, the OMO gap could still be around Rs 1.7trn, which signals the need for sustained liquidity measures.

The report also called for a cut in the cash reserve ratio (CRR) to ease the prevailing liquidity pressure in the banking sector.