As per the latest RBI report, on 20/09/2022, Indian banking system witnessed a deficit in liquidity for the first time in the past 40 months owing to various micro as well as macro-economic reasons. Though the RBI did infuse Rs. 21,800 crores into the system on 20th September, overnight call money rate stayed on a higher side of 5.85%., highest since July 2019. Further to address the issue, RBI conducted a variable rate repo auction of Rs. 50,000 crores.

The financial year of 2022-23 started with a surplus liquidity of Rs. 8 lakh crore in early April. The below mentioned factors are the major cause of this deficit:

  1. RBI intervention in currency market: RBI sold approximately $39 billion from its forex reserves between January to August 2022.
  2. Disparity between credit growth and deposit growth: As confirmed by CRISIL, for the past few months, the credit growth has been running above the deposit growth in the Indian banking system. Major reason this is banks have not hiked the deposit rates in sync with the hike in the lending rates.
  3. Robust Tax Collections: Advance Tax and GST payments too have contributed to the deficit in liquidity

A country’s liquidity position is dependent on various micro and macro factors which are too dynamic. However, a corporate entity can visualize, manage and take nimble decisions by using the state-of-the-art cash & liquidity module along with the entire Treasury Management System by IBSFINtech which empower corporations to manage currency exposure, commodity exposure, Money Market and Investments, Trade Finance Operations, Liquidity & Cash Management and Hedge Accounting which is powered by Refinitiv Data & Analytics.

– Authored by Sanket Katti
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