The Indian banking system slipped into liquidity deficit mode for the first time in the current financial year, largely due to outflows from advance tax payments and GST. According to the Reserve Bank of India (RBI) data, the net liquidity deficit stood at Rs 31,986 crore on Monday, the sharpest dip since March 28.
Economists noted that the liquidity crunch is temporary and will likely ease once government expenditure picks up in the coming weeks. "The advance tax payments and GST outflows led to the temporary tightness in liquidity. It will improve once government expenditure kicks in at the start of the month and with the next tranche of the CRR cut," said the Chief Economist at IDFC First Bank.
In response to the tight liquidity, the RBI conducted two variable rate repo (VRR) auctions, where banks borrowed a total of Rs 1.4 trillion against the cumulative notified amount of Rs 2 trillion.
Why Liquidity Turned Negative
- Advance tax outflows: Corporates and high-income taxpayers made their quarterly advance tax payments.
- GST outflows: Businesses paid GST dues, adding to system-wide liquidity pressures.
- Pending government spending: Delay in expenditure releases temporarily tightened cash flow.
Outlook Ahead
Analysts believe that with government spending resuming at the start of October and additional support from the RBI's CRR cut, liquidity conditions are expected to normalise quickly.
The RBI has remained proactive in managing short-term tightness through repo operations, ensuring banks have access to funds while maintaining monetary stability.
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