India’s banking system is currently holding a significant liquidity surplus, but RBI Governor Sanjay Malhotra expects much of the excess funds to be absorbed by the end of the financial year. The surplus has averaged around ₹7.3 trillion ($75.49 billion) since September, equivalent to roughly 2.7% of bank deposits.
The surplus was largely created by about $144 billion in dollar inflows linked to one-off financial schemes. The RBI expects liquidity to gradually decline through currency leakage, banks’ reserve requirements and central-bank operations such as variable-rate reverse repos, FX swaps and open-market bond sales.
The comments came after the RBI raised the repo rate by 25 basis points to 5.50%, its first rate increase in nearly four years, while shifting its policy stance toward “calibrated tightening.”