India's central bank withdraws over 6 trillion rupees of bank liquidity after record spike
The Reserve Bank of India absorbed more than ₹6 trillion through liquidity withdrawal operations after banking system surplus hit a record ₹11.6 trillion. Banks parked ₹2.59 trillion in a 30-day auction, while ₹3.53 trillion was offered in an overnight auction. The RBI may deploy additional reverse repos, market stabilisation bonds and sell-buy swaps to drain excess liquidity.
The Indian central bank, the Reserve Bank of India (RBI), withdrew over 6 trillion rupees ($63.53 billion) from the banking system on Monday, following a record high in banking liquidity the previous day. The bank had aimed to withdraw 7 trillion rupees through a 30-day auction, but technical glitches led to weak participation in the operation.
Despite the challenges, all bids were successfully processed through the RBI's e-Kuber system, according to a source familiar with the matter. The banking system liquidity surplus reached 11.6 trillion rupees on September 6, equivalent to nearly 4% of the banking system deposits. The sharp increase in liquidity occurred after India received a substantial $136 billion under special one-off schemes to bolster its external balances.
The RBI's total liquidity withdrawals have surpassed 8.5 trillion rupees, with these funds expected to return to the system as the operations mature. Experts suggest the central bank may use a combination of instruments such as market stabilization scheme bonds and sell-buy swaps to manage the excess liquidity. However, longer-term auctions attract less interest due to banks' reluctance to park funds for extended periods.
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