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Banking Liquidity Hits 4-Year Peak on FCNR(B) Inflows
2 Sep
Summary
- Banking system liquidity reached a four-year high in August.
- Excess liquidity pushed the weighted average call rate below the repo rate.
- Experts anticipate liquidity to normalize by December.
Banking system liquidity has reached its highest point in over four years, with ₹6.65 lakh crore recorded on August 31. This substantial increase is attributed to inflows from FCNR(B) schemes.
The surge in available funds has led to the weighted average call rate falling below the repo rate, settling at 4.98%. Consequently, a significant portion of this liquidity is being held in the Reserve Bank of India's (RBI) variable rate reverse repo (VRRR) operations.
Treasury professionals are showing a preference for shorter deployment tenures, primarily 1-3 days, within these VRRR operations, seeking a yield of 5.24%. Experts anticipate that this period of elevated liquidity will gradually subside, with normalization to ₹1-1.5 lakh crore expected by December.
