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Informist, Friday, Jan. 23, 2026

 

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--Gilt dealers: Asked RBI for more liquidity in talks this week 
--Gilt dealers: Asked RBI for more OMO bond buys, long-term repos 
--Gilt dealers:Expect RBI to add liquidity through dlr-rupee buy-sell swaps
--Gilt dealers: Some bks proposed more on-screen OMOs instead of auctions
--Gilt dealers: Some banks asked RBI to buy state bonds via OMO auctions 

 

By Aaryan Khanna

 

NEW DELHI - Bond market participants have asked the Reserve Bank of India to infuse more liquidity into the banking system as the impact of its recent measures have largely fallen flat, according to four treasury officials aware of the matter. The measures suggested include those already undertaken, such as open market operations, as well as longer-term repo operations. These suggestions were made at various meetings with the central bank earlier this week.

 

The central bank has checked with some banks what bonds and tenures are remaining in their held-to-maturity portfolios after it had already bought gilts worth over INR 7 trillion in 2025 and an additional INR 1.5 trillion in January so far, the officials said. Market participants have asked for further RBI open market operations to buy bonds, either in the primary or secondary market, after the last OMO auction Thursday. Traders expect the RBI to infuse INR 3 trillion of further liquidity until Mar. 31, the end of the current financial year.

 

"I don't think it benefits the RBI to wait until the (February monetary) policy to announce more OMOs or other measures," a treasury official at a state-owned bank said. "What it doesn't seem to realise is that none of the liquidity – four lakh crore (INR 4 trillion) in the last two months – has made its way into the banking system. That's why we have all asked for more liquidity every time we have spoken to him (RBI) recently."  

 

While the treasury officials cited above said they prefer the RBI to choose more heavily-traded securities and infuse liquidity through OMO auctions, some market participants have also recommended the central bank ramp up its secondary market purchases of bonds. Market players have speculated the RBI has bought gilts in the secondary market over the past two weeks, most likely to replenish its holdings after the maturity of the 7.59%, 2026 gilt. However, smaller banks have cited missing out on the OMO auctions and concentration of the liquidity infused by the RBI in the hands of only a few market participants – the successful bidders at auction.

 

"This is a revival of an earlier discussion," a treasury official at a private-sector bank said. "Since it looks like they have made asset-liability managers happy enough, traders are also hoping to cash in now."

 

Some banks have also asked the RBI to buy state government securities at OMO auctions as these bonds have been out of favour, which is evident from the spreads of state bonds over gilts widening to over 100 basis points for some tenures against a typical spread of less than 40 bps a year ago. States have released an indicative calendar for a gross issuance of INR 5 trillion for Jan-Mar and investors, including some large state-owned banks, are fast running out of internal limits to add more of these securities to their portfolios, treasury officials said.

 

An RBI report showed state bonds make up 41.5% of banks' held-to-maturity portfolios as of Sept. 30, up from 37.0% a year prior. This distortion has been created due to banks selling gilts to the RBI while piling on to state bonds, for which there is no exit at OMO auctions. The central bank had last bought state bonds at OMO auctions in Oct-Dec 2020, but RBI Governor Sanjay Malhotra had said in December the RBI will not buy state bonds at its OMO auctions.

 

Despite these measures, the net durable liquidity surplus as on Dec. 31 was INR 3.44 trillion against INR 5.85 trillion as on May 30. Traders correlate the reduction of the liquidity surplus with the Monetary Policy Committee's decision in June, where RBI Governor Malhotra said there was limited space for further monetary policy action. The MPC has since announced another rate cut in December but the RBI's liquidity infusions have largely been wiped out by its dollar sales to defend the rupee against the dollar, dealers said.

 

In addition to buying bonds, market participants said they also expect the RBI to conduct further dollar-rupee buy-sell swap auctions to infuse durable liquidity. The RBI held auctions for $5 bln in December and for $10 billion in January for three-year, dollar-rupee buy-sell swaps. For the last three days, the central bank has actively conducted buy-sell swaps across various tenures in order to limit the strain on rupee liquidity from its intervention in the spot foreign exchange market, dealers said. The RBI likely sold forward dollars to the tune of $1.5 billion per day in these three days, as per dealers.

 

In January, the RBI has conducted three OMO auctions of INR 500 billion each and a $10-billion dollar-rupee buy-sell swap. The daily banking liquidity surplus – as measured by the net liquidity absorbed by the central bank – was INR 101.70 billion Thursday. Banks' net demand and time liabilities totalled INR 248.60 trillion on Dec. 31. This makes the liquidity surplus less than 0.1% of banks' net liabilities against the RBI aim of 1% of these liabilities which it had articulated in April. However, the central bank has since moved away from that target and has not reiterated it in subsequent commentary.

 

Market participants have also asked the RBI to regularise its transient liquidity support through more regular variable rate repo operations, the officials said. In addition, some banks have proposed long-term repos crossing the financial year-end in March. The central bank had conducted similar 49- and 56-day VRR auctions in February last year. Bankers have been caught off guard when the RBI did not roll over its VRR auctions despite tight liquidity conditions, being forced to borrow at rates higher than the RBI repo rate in the call money market. The weighted average call rate – the operating target of monetary policy – has not been at or below the repo rate of 5.25% since Dec. 15. 

 

"Medium- or long-term repos would also be good since credit growth has been lagging behind deposit growth for some time," the official from the state-owned bank said. "The RBI has done TLTRO (targeted long-term repo operations) in the past but we are not sure whether it would bring back the COVID playbook right now. It was not a topic of discussion but we would like it to happen." 

 

After market hours Friday, the RBI announced a 90-day VRR auction for INR 250 billion on Jan. 30. It also said it would hold two OMO auctions worth INR 500 billion each in February and further infuse liquidity through a $10 billion, three-year dollar-rupee buy-sell swap auction on Feb. 4.  End

 

US$1 = INR 91.95

 

With inputs from Pratiksha and Cassandra Carvalho

Edited by Vandana Hingorani

 

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