Banks Face Liquidity Deficit of Rs 1.5 Lakh Crore

Banks are grappling with a liquidity deficit of nearly Rs 1.5 lakh crore due to advance tax payments and preparations for GST remittances ahead of the second quarter close. The Reserve Bank of India (RBI) has injected Rs 1.5 lakh crore on Monday to resolve the problem, officials said.

Banks have also borrowed a record Rs 1.97 lakh crore under the marginal standing facility and have accumulated around Rs 46,724 crore under a special deposit facility.

“We expect RBI to keep liquidity tight in the near term in order to keep short-term rates elevated, given the pressure on the rupee and underlying inflationary risks. We expect liquidity to normalize towards the surplus zone by end-September/early-October amid the government”s month-end spending,” Upasna Bhardwaj of Kotak Mahindra Bank was quoted as saying in the Times of India.

Earlier this month, the RBI had decided to discontinue the incremental cash reserve ratio (I-CRR) in a phased manner, a temporary measure to absorb excess liquidity from the banking system. In August, banks had witnessed a significant influx of funds due to the return of Rs 2,000 banknotes. This led the RBI to implement the I-CRR.

“Based on an assessment of current and evolving liquidity conditions, it has been decided that the amounts impounded under the I-CRR would be released in stages so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner,” the RBI said in a release.

As per the schedule, the RBI also released 25 percent of funds maintained by lenders under the I-CRR on September 9. Another 25 percent of the amount maintained under I-CRR will be released on September 23 and the balance 50 percent on October 7.

This means banks could hold ample funds during the festival season, which demands higher credit due to the heavy spending.