New Delhi [India]: The Reserve Bank of India (RBI) might need to inject an additional Rs 1 lakh crore into the banking system by the end of March to maintain liquidity at a balanced level, according to a report by the State Bank of India (SBI) research team.
The report revealed that systemic liquidity remains tight, with a deficit of about Rs 1.6 lakh crore as of the end of February. The average liquidity shortfall is even higher, at approximately Rs 1.95 lakh crore.
The banking system has been grappling with a severe liquidity crisis in recent months, marking it as one of the worst shortages in over a decade.
The report stated, “We believe around Rs 1 trillion more will be needed by March still to keep the systemic liquidity just in equilibrium….. Daily FPI outflows of significant amount and the maturing of forward transactions within 1/2/3 month and hence the RBI will need to infuse further liquidity.”
Liquidity conditions have significantly deteriorated in the past few months. In November 2023, the system had a surplus liquidity of Rs 1.35 lakh crore. However, this quickly shifted to a deficit of Rs 65,000 crore in December, which further expanded to Rs 2.07 lakh crore in January 2024 and Rs 1.59 lakh crore in February.
Several factors have contributed to this situation, including substantial foreign portfolio investor (FPI) outflows and the maturing of forward transactions expected in the coming months.
The report also emphasized that year-end tax outflows and rising credit demand are likely to keep liquidity conditions strained.
To alleviate the liquidity pressures, the RBI has implemented several measures, such as conducting variable rate repo (VRR) auctions of different tenors, open market operations (OMOs), and dollar-rupee swap arrangements. The central bank has been conducting daily VRR auctions since January 16 to manage short-term liquidity needs effectively.
So far, the RBI has conducted OMOs worth Rs 1.38 lakh crore, while quarter-end VRR auctions scheduled for April are estimated to be nearly Rs 1.8 lakh crore. Additionally, the central bank reduced the repo rate by 25 basis points in February 2025 to support liquidity.
Despite these efforts, the SBI report suggests that liquidity remains tight. The RBI’s daily VRR data indicates that the allotted amount as a percentage of bids received has averaged 83 percent since December 17, 2024.
While there has been a slight reduction in the daily liquidity deficit in March, the overall situation remains challenging due to sustained credit demand and fiscal outflows.
In light of these factors, the report estimates that the RBI will need to infuse approximately Rs 1 lakh crore by the end of March to restore liquidity balance. If liquidity conditions continue to remain tight, the central bank might have to introduce additional measures to stabilize the banking system.