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Increased government spending and higher deposit flow from corporates during the end of the financial year (FY23) resulted in an easing of the liquidity situation in the banking system in the past few days.
From March 28 to April 2, 2023, the Reserve Bank of India (RBI) absorbed Rs 4.14 lakh crore of liquidity on a net basis from the banking system, the data showed.
On April 2, 2023, the RBI’s net liquidity absorption stood at Rs 1.52 lakh crore – the highest in almost three months. On January 5, 2023, the RBI absorbed Rs 1.55 lakh crore of surplus liquidity from the system.
“In the last few days, we have seen that the government has spent considerably, which has led to the improvement in the liquidity situation,” Kotak Mahindra Bank’s Chief Economist Upasna Bhardwaj said.
Usually, the government’s spending increases towards the end of March every year as it has to meet the total target of that particular year.
Besides, higher short-term deposits from corporate also contributed to the easing of the liquidity situation, Bank of Baroda’s Chief Economist Madan Sabnavis said.
The current surplus liquidity condition follows the tightness seen in the system from March 15 to March 27 on account of advance tax and goods and services tax (GST) payments. The total liquidity infused by the RBI in these 12 days was Rs 9.82 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 injected Rs 27,668.47 crore of liquidity.
On March 17, the net liquidity infusion was Rs 1.24 lakh crore, which was the highest daily infusion by the central bank in almost three years. However, analysts expect the present surplus liquidity situation to be temporary.
Going ahead, liquidity is expected to remain tight as the government might not be able to spend aggressively because of low cash balances and higher leakage in currency in circulation, Kotak Mahindra Bank’s Bhardwaj said.
According to India Ratings and Research’s Director (core analytical group) Soumyajit Niyogi, the redemption of target long-term repo operations (TLTROs) during April will put pressure on the liquidity situation.
TLTROs worth Rs 61,131 crore will mature in the current month. Of this, Rs 16,423 crore of TLTROs matured on April 3. RBI conducted TLTRO and TLTRO 2.0 in 2020 to provide liquidity support to sectors that were affected by the Covid pandemic.
© The Indian Express (P) Ltd
First published on: 05-04-2023 at 05:30 IST
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