RBI Drains Over ₹6 Trillion After Liquidity Surge
The Reserve Bank of India absorbed more than ₹6 trillion from the banking system on Monday after surplus liquidity surged to a record ₹11.6 trillion, prompting the central bank to intensify efforts to prevent excessive cash from fuelling inflation and financial-market distortions.
RBI Withdraws Over ₹6 Trillion From Banks
Banks offered ₹3.53 trillion in an overnight reverse repo auction after placing another ₹2.59 trillion with the RBI through a separate 30-day operation.
The central bank had sought to absorb as much as ₹7 trillion through the longer-term auction, but participation was significantly below the announced amount.
Five market traders attributed the weak response to technical problems during bidding. However, a person familiar with the RBI’s systems disputed that explanation, saying all bids were successfully processed through the central bank’s e-Kuber platform.
Banking Liquidity Hits Record ₹11.6 Trillion
India’s banking system liquidity surplus reached ₹11.6 trillion on September 6, equivalent to nearly 4% of total banking deposits.
The unusually large cash surplus followed inflows of around $136 billion under special one-off measures introduced to strengthen India’s external balances.
Excess banking liquidity can lower short-term borrowing costs and support lending, but a prolonged surplus can complicate monetary policy by adding to inflationary pressures and pushing financial asset prices higher.
RBI May Use More Tools to Drain Liquidity
The RBI has now withdrawn more than ₹8.5 trillion through various liquidity operations, although the funds will eventually return to the banking system as those transactions mature.
The central bank has been using reverse repo operations ranging from overnight to 15-day tenors, while longer-duration auctions have attracted weaker participation because banks are reluctant to lock away funds for extended periods.
Economists expect the RBI could also consider market stabilisation bonds and foreign-exchange sell-buy swaps to absorb excess liquidity if the surplus remains elevated.
