As liquidity tightens, RBI infuses Rs 7.89 lakh cr between March 15 and 23

According to the RBI data, liquidity infusion by the central bank between March 15 and March 23 stood at Rs 7.89 lakh crore. On March 15, the central bank infused Rs 49,796 crore of liquidity into the banking system – the first such injection since February 27, 2023, when it had infused Rs 27,668.47 crore.

On March 17, the net liquidity infusion was Rs 1.24 lakh crore, the highest daily infusion by the central bank in almost three-years.

“The tightness in liquidity is due to a combination of factors. One of the reasons is GST outflows. If you look at the credit and deposit growth scenario, though deposits growth has started picking up, it is still lagging behind advances growth, which is leading to tightening in liquidity,” said Rajani Sinha, Chief Economist at Care Ratings.

The latest RBI data showed that the bank deposits grew by 10.3 per cent and credit increased by 15.7 per cent in the fortnight ended March 10, 2023. The growth in deposits has increased from around 8-9 per cent seen a few months back.

At a time when bank deposits have been growing at a slower pace than credit, the year-end demand for funds will also put pressure on liquidity conditions, bankers said.

Sinha said the RBI’s intervention in the foreign exchange market to stem fall in the rupee generally results in increase in the rupee liquidity, but currently that supporting factor is also not seen.
To ease banking system liquidity, the RBI has conducted variable repo rate (VRR) operations. On March 24, banks borrowed Rs 55,885 crore from a five-day variable repo rate auction. In a 14-day variable repo rate auction held on March 10, banks borrowed Rs 82,650 crore.

Bankers said the liquidity condition is likely to remain tight for next few days due to redemption of Rs 61,131 crore of targeted long term repo operations (TLTROs) in April.

“There will also be stress in liquidity conditions because of the TLRO (redemption). The RBI will have to conduct longer tenure operations to infuse more permanent liquidity,” HDFC Bank’s Chief Economist and Executive Vice President, Abheek Barua said.

In order to provide liquidity support to sectors that were facing issues due to the Covid pandemic, the RBI had conducted TLTRO and TLTRO 2.0 in 2020. Banks deployed the liquidity availed by banks under the scheme in corporate bonds, commercial papers, and non-convertible debentures issued by the entities that were in stress.