Liquidity in banking system in surplus even after adjusting for cash balances: RBI governor

Liquidity will be actively managed by RBI (File Photo)

Reserve Bank of India (RBI) Governor Shaktikanta Das on February 8 said liquidity in the banking system was in surplus after adjusting with the government cash balances.

“Systemic liquidity turned into deficit in September 2023 after a gap of four-and-a-half years. But after adjusting for government cash balances, potential liquidity in the banking system is still in surplus,” Das said during monetary policy announcement.

Liquidity in the banking system is estimated to be in deficit of around Rs 1.53 lakh crore as on February 7. On the other hand, government cash balances stood is around Rs 3.59 lakh crore, as on January 12, according to Bloomberg data.

Liquidity in the banking system has remained tight over the past few months. The RBI has provided support with variable rate repo (VRR) auctions whenever there were major outflows from the banking system. Currently, liquidity in the banking system is estimated to be in a deficit of about Rs 1.01 lakh crore.

However, the central bank has conducted variable rate reverse repo (VRRR) auctions over the past few days. Experts said this was because of higher funds parked by a few banks in the Standing Deposit Facility (SDF) and a fall in overnight rates.

On February 7, Moneycontrol reported that the RBI is likely to conduct more VRRR auctions if the funds parked by banks in the SDF remain high. Under the SDF, eligible entities can place deposits with the RBI on an overnight basis.

Since the start of this month, funds placed in the SDF by banks daily remained at over Rs 1 lakh crore. As per RBI data, banks parked Rs 1.02 lakh crore on February 2, Rs 95,979 crore on February 3, Rs 1.11 lakh crore on February 4, and Rs 1.25 lakh crore on February 5.

The RBI kept the repo rate unchanged in the February monetary policy at 6.50 percent.