TNIE online desk
RBI is absorbing excess liquidity from banks
India's banking system had a surplus of around Rs 9.7 lakh crore in early September, at one point approaching Rs 11 lakh crore. The RBI is withdrawing excess cash to maintain control over short-term interest rates.
Foreign currency inflows created the surplus
Indian banks raised around USD 127 billion through a special foreign currency deposit scheme by August 31. Converting foreign funds into rupees increased liquidity in the banking system.
RBI to withdraw RS 1 lakh crore through bond sales
The RBI is selling government bonds worth Rs1 lakh crore in three phases:
September 17: Rs 50,000 crore
September 21: Rs 25,000 crore
September 28: Rs 25,000 crore
Banks purchasing these bonds transfer rupees to the RBI, reducing excess liquidity.
The move does not mean an increase in the repo rate
The RBI's repo rate remains at 5.25%. Bond sales can tighten market liquidity and indirectly influence borrowing costs, but they do not automatically increase loan interest rates.
Impact on ordinary bank customers
The RBI's liquidity operations do not directly deduct money from bank accounts or automatically change loan EMIs. However, changes in market interest rates could eventually affect borrowing costs and deposit returns.