Banking liquidity turns deficit in FY26 as tax outflows rise, RBI steps in

Banking system liquidity has tipped into the deficit mode for the primary time in FY26 on tax outflows, prompting the central financial institution to infuse further funds to assist in a single day charges keep anchored to the coverage repo fee, financial institution treasury officers stated.

System liquidity moved to a deficit of round Rs32,000 crore on Monday from a surplus of Rs7,000 crore a day in the past, Reserve Financial institution of India (RBI) information revealed Tuesday confirmed.

Liquidity surplus narrowed sharply earlier than transferring into deficit mode after an estimated Rs2.5-Rs 3.0 lakh crore moved out on tax funds, together with each Items and Service Tax (GST) and advance taxes.

Earlier than this, the common surplus was above the central financial institution’s threshold of 1% of banks’ deposit (internet demand and time liabilities), which works to round Rs2.5 lakh crore.

“Along with month-to-month GST funds, there have been additionally advance tax outflows. That had put stress on systemic liquidity,” stated VRC Reddy, head of treasury, Karur Vysya Financial institution. “Nevertheless, that is anticipated to be transitory, and liquidity is predicted to maneuver to surplus by the top of this month as authorities spending picks up. The second section of CRR cuts may also assist.”

Adjustments in systemic liquidity led to in a single day cash market charges spiking above the coverage repo fee of 5.5%, in flip prompting the RBI to conduct two in a single day variable fee repo auctions of Rs1 lakh crore every on Tuesday.Whereas the primary public sale was oversubscribed, the second public sale, which was introduced on Tuesday morning, was subscribed solely round 40%.

The VRR auctions helped settle down in a single day charges, financial institution treasury officers stated. Weighted common name fee (WACR), which acts because the operative fee for financial coverage transmission, closed at 5.59% in comparison with earlier shut of 5.58%, whereas TREPS (tri-party repo dealing system) fee fell to five.41% from 5.54%.

Round Rs 60,000 crore will likely be added to system liquidity on account of the second section of CRR reduce, which will likely be efficient fortnight starting October 4. As well as, round Rs 72,000 crore may also be added this week from the maturity of two authorities bonds.