Banks may invest ₹7 trillion in G-secs in FY27 amid rising deposit base

Banks are likely to invest around Rs 7 trillion in G-secs in FY27 as deposit growth strengthens and SLR requirements rise, with RBI expected to use OMOs to manage liquidity, analysts said

Banks were expected to invest around ₹7 trillion in government securities (Gsec) in the upcoming financial year as their overall statutory liquidity ratio (SLR) holdings have declined, Shailendra Jhingan, head – treasury  at ICICI Bank, said on Monday. He was speaking at IIMK-NSE 3rd Annual Conference on Macroeconomics, Banking & Finance.

 

Jhingan added that bank deposit growth was projected between 10 per cent and 12 per cent in 2026-2027 (FY27), implying incremental accretions of around ₹30 trillion. As banks maintain about 25 per cent of deposits in SLR assets, this translates into potential investments of roughly ₹7 trillion in government bonds.

 

“We expect bank deposit growth of about 10 per cent-12 per cent in FY27, which would mean incremental deposits of roughly ₹30 trillion. With around a quarter of deposits going into SLR, that translates into close to ₹7 trillion of demand for government bonds. Long-term demand should also pick up as pension funds come back, and Bloomberg index inclusion will add to flows. So supply should get absorbed,” said Jhingan said.

 

Jhingan said the yield on the benchmark 10-year government bond was expected to remain capped below 7 per cent during FY27.

 

The yield on the benchmark 10-year government bond settled at 6.70 per cent on Monday, against the previous close of 6.72 per cent.

 

While the combined gross supply of around ₹30 trillion of Central and state government bonds was expected to be absorbed by the market, the central bank may still need to conduct open market operations (OMO) to address the system’s liquidity requirements.

 

Jhingan said the central bank is likely to undertake OMO purchases of around ₹2 trillion during the year, primarily for liquidity management rather than to directly influence bond yields.

 

However, a section of the market expects a larger infusion of durable liquidity, of at least ₹5 trillion in FY27 to ensure that core system liquidity does not fall below 1 per cent of net demand and time liabilities (NDTL) by March 2027, from 2.3 per cent as of February 6, 2026.

 

Market participants said OMO purchases were likely to remain the primary instrument for such liquidity infusion, particularly amid elevated bond supply.

 

“In FY27, RBI will need to infuse durable liquidity of at least ₹ 5 trillion to ensure that core liquidity surplus doesn’t dip below 1 per cent of NDTL by March 2027 from 2.3 per cent of NDTL as of February 6th 2026. The liquidity infusion tool is likely to be OMO purchases as this will address some of the adverse demand-supply dynamics facing the bond market,” according to a report by IDFC First bank.

 

“We expect 10-year gsec yields to range between 6.70 per cent to 6.85 per cent in FY27,” the report said.

 

Headline system liquidity was in surplus of around ₹1.73 trillion on Sunday, latest data by the RBI showed.  Market participants estimate that goods and services tax (GST) and income tax outflows could drain nearly ₹2 trillion from the banking system by the end of March. In addition, banks may need another ₹2 trillion to meet liquidity coverage ratio (LCR) requirements and manage intra-day mismatches.