RBI Governor Shaktikanta Das, during the announcement of the Monetary Policy Committee (MPC)’s decisions, stated that the Indian banking system maintains its stability and resilience, while credit growth demonstrates robustness and domestic financial markets have shown orderly development.
On the back of double-digit growth of 15.6% in non-food bank credit, the flow of resources to the commercial sector in 2023-24 (up to May 19, 2023) increased to Rs 2.7 lakh crore from Rs 1 lakh crore during the same period last year.
Das said that the average system liquidity is still in surplus mode and could increase as Rs 2,000 banknotes get deposited in the banks. Surplus liquidity, as reflected in average daily absorptions under the LAF at Rs 1.7 lakh crore during April-May, was lower than Rs 2.9 lakh crore during the full year 2022-23. The shrinkage in surplus liquidity during April-May was, among other things, due to the maturing of TLTROs. The seasonal expansion in currency in circulation and build-up of government cash balances during this period also moderated surplus liquidity. Since the third week of May, however, the decline in currency in circulation and pick-up in government spending have expanded the system liquidity. This has got further augmented due to the Reserve Bank’s market operations and the deposit of Rs 2,000 banknotes in banks.
The prevalence of surplus liquidity amidst higher recourse to the marginal standing facility (MSF) by some banks suggests skewed liquidity distribution within the banking system. To address this situation, the Reserve Bank conducted a 14-day variable rate repo (VRR) auction amounting to Rs 50,000 crore as part of its main operation on May 19, 2023, similar to two such auctions conducted earlier in February and March 2023. Reflecting swiftness in its liquidity action, the Reserve Bank conducted a 14-day variable rate reverse repo (VRRR) auction of Rs 2 lakh crore on June 2; 4-day VRRR of ₹1.0 lakh crore on June 5; 3-day VRRR of Rs 75,000 crore on June 6; and 2-day VRRR of R 75,000 crore on June 7, considering the overall build-up of surplus liquidity. The response has been cautious in these auctions.
Das said that with a view to providing greater flexibility for managing their liquidity, it has been decided that scheduled commercial banks (SCBs) (excluding small finance banks) can set their own limits for borrowing in call and notice money markets within the prescribed prudential limits for inter-bank liabilities. The extant regulatory guidelines prescribe prudential limits for outstanding borrowing in call and notice money markets for SCBs.
Das further said that going forward, the Reserve Bank will remain nimble in its liquidity management, while ensuring that adequate resources are available for the productive requirements of the economy. The Reserve Bank will also ensure the orderly completion of the government’s market borrowing program.
