The financial landscape in India witnessed a substantial liquidity deficit, tallying up to an alarming ₹1.5 lakh crore on Wednesday. This predicament stemmed primarily from significant outflows, attributed to advance tax disbursements and the proactive measures taken in anticipation of GST remittances ahead of the imminent second-quarter closure.
The Reserve Bank of India (RBI) promptly responded by extending a lifeline, providing liquidity support amounting to ₹1.5 lakh crore on Monday. In a remarkable turn of events, banks resorted to borrowing a record-breaking ₹1.97 lakh crore through the marginal standing facility. Simultaneously, a sum of approximately ₹46,724 crore found its place under the umbrella of a special deposit facility.
Analyzing the situation, Upasna Bhardwaj, a distinguished expert from Kotak Mahindra Bank, expressed the expectation that the RBI will persist in maintaining a tight grip on liquidity in the immediate future. This approach is driven by the necessity to uphold short-term interest rates at an elevated level, considering the prevailing pressure on the Indian rupee and the looming specter of underlying inflationary threats. Bhardwaj further anticipates that liquidity will eventually revert to a surplus state towards the end of September or early October, in alignment with the government’s anticipated end-of-month expenditures.
In times of liquidity deficit, financial institutions often turn to central banks for short-term financial injections or employ various liquidity management strategies to bridge the gap, thereby ensuring the stability of the banking system. Effective liquidity management remains pivotal for maintaining public trust and safeguarding the overall vitality of the financial sector.
