The Reserve Bank of India (RBI) on Friday said it will inject over Rs 2 lakh crore of liquidity into the banking system. On a review of current liquidity and financial conditions, the Reserve Bank has decided to conduct the following operations to inject liquidity into the banking system:
- 90-day Variable Rate Repo (VRR) operation for an amount of ₹25,000 crore to be conducted on January 30, 2026.
- USD/INR Buy/Sell Swap auction of USD 10 billion for a tenor of 3 years to be held on February 04, 2026.
- OMO purchase auctions of Government of India securities for an aggregate amount of ₹1,00,000 crore in two tranches of ₹50,000 crore each to be held on February 05, 2026, and February 12, 2026.
How this works: When RBI buys government bonds, it pays money to banks, directly increasing liquidity in the system.
Why RBI injects Liquidity?
RBI injects liquidity when:
- Banks are facing a shortage of funds
- Borrowing costs are rising
- Credit flow to businesses and consumers needs support
This move helps ensure that banks have enough cash and that the financial system runs smoothly.
Why Banks are facing liquidity crisis?
One important reason why banks are facing a liquidity shortage is that customers are no longer keeping enough money in bank deposits. Instead, many customers are being encouraged or pressured to invest in insurance, mutual funds, and SIPs.
Over the past few years, banks have focused heavily on selling third-party products such as:
- Life insurance
- Health insurance
- Mutual funds
- SIPs and investment plans
As a result, money that would normally stay in savings accounts or fixed deposits is moving out into these products. Deposits are the main source of money for banks. When customers invest in insurance or mutual funds, that money does not remain with the bank. Banks earn commission, but they lose long-term deposit funds.
This creates a situation where Banks have strong loan demand but insufficient deposits to support lending. Customers also prefer market-linked products due to Lower FD returns in the past, Aggressive promotion of insurance and mutual funds and Expectations of higher returns. This further reduces deposit growth.
