Banking system net liquidity improves on back of RBI's swap auction

The net liquidity in the banking system narrowed to Rs 40,788 crore on Wednesday on the back of government spending and the $10 billion swap auction conducted by the central bank on Monday, said experts.

 

The net liquidity in the banking system was in a deficit of Rs 1.57 trillion on Tuesday, Reserve Bank of India (RBI) data showed. The banking system’s net liquidity has been in deficit mode since mid-December, and it had widened to a deficit of Rs 3.2 trillion in January.

 

“Liquidity improved because of government spending and the swap auction, as the settlement data for the auction was Wednesday. Around Rs 90,000 crore would have come via the swap,” said Gaura Sen Gupta, chief economist at IDFC First Bank. “The liquidity will turn mildly surplus by the end of March. The impact of government spending is now already beginning to be felt, and we'll see more of it at month-end and in the first week of April,” she added.

 

The RBI had received bids worth $22.28 billion at the USD/INR buy-sell swap auction on Monday, against the notified amount of $10 billion.

 

“The reduction of the liquidity deficit indicates that the RBI’s measures to inject liquidity into the system have been effective. The central bank infused substantial liquidity ahead of advance tax and goods and services tax (GST) payments, and the current levels suggest that these measures have yielded the desired results. Additionally, the RBI is mindful of the typical credit pickup toward the end of the financial year and has worked to keep the deficit in check. Looking ahead to FY26, a significant and persistent liquidity deficit is unlikely,” said Madan Sabnavis, chief economist at Bank of Baroda.

 

Since January, the central bank has actively managed liquidity by adjusting the volume of repos on a daily basis and holding multiple auctions within a single day.

 

Since January, the central bank has injected over Rs 5 trillion of durable liquidity into the banking system through government securities purchases via open market operations (OMO) auctions and dollar–rupee buy-sell swaps. Another Rs 1.8 trillion was infused through repos maturing in early April.

 

Additionally, the central bank has actively managed liquidity by adjusting repo volumes daily and conducting multiple auctions in a single day.