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Informist, Friday, Mar. 6, 2026

 

--Dealers: RBI sought banks' feedback on liquidity steps post tax outflows 

--CONTEXT:Advance tax, GST payment may drain INR 4 tln from banking system Mar

--Dealers: RBI asked banks whether to infuse liquidity via VRRs or OMOs Mar 
--Dealers: Some banks suggested RBI hold OMO auction Mar to infuse liquidity 
 

By Cassandra Carvalho and Aaryan Khanna

 

MUMBAI/NEW DELHI – The Reserve Bank of India sought feedback from banks on what liquidity steps it should take to infuse liquidity into the banking system, according to four bank dealers aware of the discussions. Advance tax outflows in mid-March and goods and services tax payments are expected to drain around INR 4 trillion from banking system liquidity and into the government's cash balances.

 

"It was part of normal feedback process for what measures should be taken in the next to next week when liquidity will go to neutral or even into deficit," one of the dealers said. "The options were the usual ones: either durable liquidity through OMOs (open market operations to buy bonds) or a more temporary VRR (variable rate repo) auction." 

 

According to latest data, the net liquidity absorbed by the RBI from the banking system - a proxy for the liquidity surplus - was INR 3.02 trillion Thursday, higher than INR 2.67 trillion Wednesday. It has remained in a surplus since Jan. 22. Since Feb. 1, the surplus liquidity has averaged INR 2.5 trillion, or about 1% of banks' net demand and time liabilities. The net durable liquidity surplus also rose to a near eight-month high of INR 5.60 trillion as on Feb. 15.

 

The dealer quoted ealier said that a VRR auction would be a better choice as the liquidity outflows were transient in nature and might return quickly into the banking system with the government likely to step up spending near the financial year-end on Mar. 31. Moreover, banks are approaching comfortable minimums on liquidity coverage ratios and are likely to hold onto gilts as these high quality liquid assets are necessary to maintain regulatory norms. However, at least two of the four banks consulted suggested that the central bank infuse liquidity through OMO auctions to buy bonds.

 

"The feedback from our side was that OMOs should be conducted since they give more durable liquidity," another of the dealers said. "Banks are always preferring that the RBI do OMOs so that the liquidity can be used for credit generation." The central bank had not conducted an OMO auction since early February but has bought gilts sporadically in the secondary market, including INR 99 billion of liquidity infusion through this tool in the Feb. 23-27 week. 

 

After gilt market hours Friday, the RBI announced it would buy INR 1 trillion of government bonds through OMOs in two tranches, one on Monday and the other on Mar. 13. Bond market participants said that after seeking banks' feedback on which tool to use this week, the RBI had likely taken the decision to infuse liquidity pre-emptively rather than wait for a drain following the advance tax payment next week. This was in line with RBI Governor Sanjay Malhotra's comments during and after the latest Monetary Policy Committee meeting in February, assuring proactive liquidity management.  End

 

With inputs from J. Navya Sruthi

Edited by Avishek Dutta

 

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