RBI's Strategic Move to Enhance Banking Liquidity

The Reserve Bank of India (RBI) has announced a significant step to infuse Rs 40,000 crore into the banking system through the purchase of government securities on April 17. This marks the third open market operation (OMO) by the RBI in the current fiscal year, following two previous infusions of Rs 20,000 crore each on April 3 and April 8.

Understanding the Impact of Liquidity Infusion

This liquidity infusion aligns with the RBI's policy to inject liquidity equivalent to 1% of the net demand and time liabilities (NDTL) into the banking system. With the banking system's NDTL standing at approximately Rs 250 lakh crore, the anticipated liquidity infusion could reach Rs 2.5 lakh crore, as per insights from fund managers.

Recent Trends in RBI's Monetary Policy

Since January 2025, the RBI has infused nearly Rs 7 lakh crore into the banking system, accompanied by two rate cuts in February and April. These measures have led to a 20-25 basis points reduction in the benchmark yield for 10-year gilts, now at around 6.5%, subsequently lowering loan interest rates offered by banks and NBFCs.

Shift in Liquidity Measurement Approach

The RBI has recently revised its methodology for assessing banking system liquidity, now focusing on system liquidity rather than durable liquidity. This change emphasizes the funds readily available within the banking system, excluding the government's cash balances, which may vary.