The average daily net liquidity absorption under Reserve Bank’s Liquidity Adjustment Facility (LAF) - which allows banks to adjust day-to-day liquidity mismatch - has nearly doubled over the past four months from Rs 1.6 lakh crore to Rs 3 lakh crore, Governor Sanjay Malhotra said during the Monetary Policy Committee (MPC) briefing on August 6.
“System liquidity, as measured by the net position under the LAF, has been in surplus, on an average of Rs 3 lakh crore per day since the last MPC, as compared to an average daily surplus of Rs 1.6 lakh crore during the previous two months,” Malhotra said.
The sharp increase in the liquidity can be attributed to the durable liquidity infusion since start of this year by the RBI through various instruments such as open market operations (OMOs) purchases of governments securities and USD/INR buy-sell swap auctions.
The banking system also also got support from the daily variable rate repo auction conducted by the RBI, normal VRR auctions, government’s month-end spending, and increase in government capital expenditure. Currently, liquidity in the banking system is in surplus of around Rs 3.99 lakh crore, as per RBI’s data.
The infusion of liquidity in the banking system had started coming under stress since November 2024 due to tax outflows, heavy selling by foreign portfolio investors in Indian equities and the consequent intervention by the RBI in the forex market to sell dollars, along with lower-than-anticipated government spending.
Governor Malhotra said the systemic liquidity has now remained in surplus since April 2025, reversing the tightness seen during the earlier part of FY25. “Liquidity is currently hovering around Rs 4 lakh crore,” he said, underscoring the extent of the surplus.
The surplus liquidity has helped most money market instruments rates to ease sharply and make borrowing cost cheaper for corporates as well as banks. RBI Governor said these conditions are expected to continue in the months ahead, especially as the RBI proceeds with the phased release of Cash Reserve Ratio (CRR) balances, starting September.
According to the RBI Governor, the CRR balances impounded earlier for managing inflation-related liquidity tightness will now be released in tranches, helping banks deploy more capital into lending and investment activities.
RBI’s CRR cut announced earlier this year will give a boost to liquidity, adding Rs 2.5 lakh crore to the banking system. The CRR cut is scheduled in four tranches of 25 bps each starting from the fortnight beginning September 6, followed by October 4, November 1 and November 29, 2025.
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