India’s banking system is facing a significant liquidity deficit, with the shortfall reaching an alarming ₹2 trillion. This has prompted bankers to call for immediate action from the Reserve Bank of India (RBI) to stabilize the situation.
Rising Concerns Over Liquidity Shortage
The liquidity crunch has been attributed to multiple factors, including the recent advance tax payments by businesses and seasonal cash demand. These have led to a sharp increase in overnight borrowing costs, raising concerns about credit availability and its potential impact on economic activity.
Market participants fear that if the deficit persists, it could tighten financial conditions and slow down economic growth. Bankers are urging the RBI to implement durable measures to address the issue and ensure stability in the financial system.
Suggested Measures for Liquidity Support
To tackle the liquidity shortfall, bankers have recommended that the RBI consider tools such as:
- Open Market Operations (OMOs): Buying government securities to inject liquidity into the system.
- Targeted Long-Term Repo Operations (TLTROs): Providing long-term funds to banks for lending to specific sectors.
These measures, according to financial institutions, would help maintain a steady flow of funds, reduce market volatility, and support overall economic growth.
RBI’s Current Approach and Expert Opinions
The RBI has been closely monitoring the liquidity situation and recently conducted variable rate repo auctions to address short-term mismatches. While these steps provided temporary relief, experts believe a more sustained and structural approach may be necessary to resolve the underlying deficit.
Festive Season Adds to Pressure
With the festive season around the corner, demand for cash is expected to rise further, putting additional pressure on the banking system. This could exacerbate the liquidity crunch unless timely measures are taken.
Critical Role of RBI’s Response
The RBI’s actions in the coming days will be crucial in maintaining financial stability. Market participants are keenly watching for announcements of new measures to ensure the smooth functioning of credit markets and support economic momentum.
leave the other all.
please stress and share with me with heartly that since,201442024 every State Govt. and Central Govt. are allocating free packages under various schemes only for their victory in Election, in my personal opinion it has impact also on Liquidity.
How far I am right, I don’t know but in PSBs from 1st of the month to 10th maximum foot fall in the Branch there are crowd of DBT customers, which is totally non productive task, but Banks’ are under obligation to obey the order of the Govt.