RBI may need to drain Rs 1.4 lakh cr as inflows add to excess liquidity

Strong foreign investment inflows have sent the rupee up nearly 7% against the dollar

The Reserve Bank of India (RBI) will likely have to drain up to $22 billion in excess liquidity from the financial system as surging foreign investments force the central bank to absorb the dollar inflows and sell rupees to cap gains in the local currency.

Foreign investments into debt and shares have reached a net $31 billion this year, compared with $2.7 billion in sales last year, due to factors including India's low inflation and improving economic growth.

The strong inflows have sent the rupee up nearly seven per cent against the dollar and forced the RBI to buy more than $10