Around ₹1 lakh crore more liquidity injection will be needed by March-end 2025 to keep the systemic liquidity just in equilibrium mode, per an assessment by State Bank of India’s economic research department

SBI Economists observed that system liquidity is still at a deficit of ₹1.6 lakh crore (end-February) while average deficit is higher at ₹1.95 lakh crore.

They noted that system liquidity situation remained tight and turned to injection mode since December 16, 2024, due to many reasons — tax outflows, forex market intervention and volatility in capital flows.

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Further with the implementation of Just in Time (JIT), the system liquidity has been impacted through movements in Government cash balances.

“The Indian banking system liquidity encountered its worst liquidity crunch in more than a decade. The system liquidity moved from a surplus of ₹1.35 lakh crore in November 2024 to a deficit of ₹0.65 lakh crore in December, 2024 further to ₹2.07 lakh crore deficit in January 2025 and ₹1.59 lakh crore in February 2025,” per a report by SBI Research.

While the liquidity situation has eased somewhat, with daily liquidity deficit reducing in March, the Economists believe system liquidity will remain tight due to year end tax outflows / credit off-take.

“…Variable Rate Repo (VRR) auction amount is higher than GOI (Government of India) balance with RBI…indicating that RBI has fully used up the GoI balances and the residual amount was out of RBI liquidity from other sources.

“RBI is thus neutralising the Government cash balances through a carefully crafted dynamic liquidity management policy…an example of injection of temporary liquidity replacing not only shortfall of temporary liquidity, but also perhaps shortfall in permanent liquidity,” they said.

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In principle, the unspent cash balance of the Government is now being auctioned by the RBI through repos, has its limitation in terms of amount and tenor, said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

He observed that while RBI’s steps do provide some comfort in terms of liquidity, the cash balances of Government cannot become a part of permanent liquidity as they cannot be transferred to Banking system under the current JIT (just-in-time) mechanism and can at best be used to manage only short term mismatches

More liquidity measures needed

SBI’s economists assessed that with an unchanged ownership in Government Securities (G-Secs) in FY26, the OMO (open market operation) gap in FY26 could still be around ₹1.7 lakh crore. Thus, more liquidity measures could be required on a sustained basis.

They suggested that RBI could look into using CRR (cash reserve ratio) more as a regulatory intervention tool / countercyclical liquidity buffer rather than as a liquidity tool in future.

Ghosh said there is an urgent need to revisit the existing liquidity management framework by RBI by replacing the WACR (weighted average call money rate) as a policy rate as it does not serve the intended purpose