Mumbai: Surplus liquidity in the banking system surged to nearly Rs 5 lakh crore at the end of August, its highest level in over four months, boosted by month-end government spending and robust foreign currency deposits.
According to data compiled by PTI from the Reserve Bank of India (RBI), surplus system liquidity stood at Rs 5.05 lakh crore as on August 30, the highest level since April 15, 2026, when it was at Rs 5.22 lakh crore.
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"Net system liquidity has risen to around Rs 5 lakh crore as we approach the closure of the FX swaps linked to FCNR(B) deposits. The increasing pace of FCNR(B) deposit inflows, coupled with month-end government spending, has further augmented liquidity, taking the system surplus to nearly Rs 5 lakh crore," said Mataprasad Pandey, vice president at Choice Wealth.
Banks mobilised about USD 65.4 billion through FCNR(B), or Foreign Currency Non-Resident (Bank), deposits under the RBI's special USD-INR swap facility as of August 21. The mobilisation brought foreign currency into the banking system, while the subsequent swaps with the RBI provided rupee liquidity to banks.
Besides FCNR(B) inflows, month-end government expenditure, including payments towards salaries and pensions, also added to liquidity in the banking system.
A report from HDFC Bank on Monday said estimated total flows under the concessional swap facilities are expected to be closer to USD 90-95 billion.
Collectively, these inflows are expected to add rupee liquidity of anywhere between Rs 8.5-9 lakh crore.
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Total flows through the concessional swap facility reached USD 72.8 billion as of August 21, implying a liquidity injection of close to Rs 7 lakh crore. However, system liquidity has been much lower, closer to Rs 3.5 lakh crore for most of August, the report said.
"This, we believe, has been due to elevated currency leakage, continued FX intervention by the RBI (dollar sales and rupee liquidity absorption) to keep the rupee stable, along with some drag due to maturities of RBI's short forward dollar book," the report said.
With surplus liquidity rising sharply, the RBI has been using variable rate reverse repo (VRRR) auctions to absorb excess funds and align overnight money market rates with the repo rate. The central bank has conducted 23 VRRR auctions, with most receiving a healthy response as banks parked funds with the RBI.
However, a substantial amount of liquidity continued to remain with banks despite the RBI's absorption operations. The comfortable liquidity position has supported lending conditions and is expected to provide further support to credit growth.
HDFC Bank report further expects system liquidity to end between Rs 4-4.5 lakh crore, as we move into the second half of September and October.
Liquidity balance is expected to rise again in November due to government securities and state development loans redemptions. However, from December onwards, we anticipate liquidity balances to start reducing and likely fall below 1 per cent of NDTL (Net Demand and Time Liabilities) between January-March quarter, the report added.
