The Reserve Bank of India (RBI) may need to inject an additional ₹1 lakh crore into the banking system by March to maintain liquidity levels, according to a report by the State Bank of India (SBI). The report highlights that systemic liquidity has been consistently tight, with a deficit of approximately ₹1.6 lakh crore as of the end of February. The average liquidity deficit is higher, at around ₹1.95 lakh crore.
The banking system has been facing a severe liquidity crunch in recent months, making it one of the worst shortages in over a decade. The deficit has widened significantly, from a surplus of ₹1.35 lakh crore in November 2023 to a deficit of ₹65,000 crore in December, and further to ₹2.07 lakh crore in January 2024 and ₹1.59 lakh crore in February.
Several factors have contributed to this situation, including significant foreign portfolio investor (FPI) outflows and the maturing of forward transactions over the next few months. The report notes that year-end tax outflows and rising credit demand will likely keep liquidity conditions tight.
To ease liquidity pressures, the RBI has taken several measures, including conducting variable rate repo (VRR) auctions, open market operations (OMOs), and dollar-rupee swap arrangements. The central bank has also reduced the repo rate by 25 basis points in February 2025 to support liquidity.
However, the SBI report indicates that despite these efforts, liquidity remains tight, with a daily VRR data showing that the allotted amount as a percentage of bids received has averaged 83% since December 17, 2024. Given this, the report estimates that the RBI will need to inject around ₹1 lakh crore by the end of March to bring liquidity to a balanced level. If liquidity conditions remain tight, the central bank may need to take further measures to stabilize the banking system.