RBI to Infuse Rs 2.5 Lakh Crore for Banking Liquidity
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Synopsis
On February 12, the Reserve Bank of India announced its plan to inject Rs 2.5 lakh crore into the banking sector through a Variable Rate Repo auction, aiming to improve liquidity conditions in the financial system.
Key Takeaways
- RBI to inject Rs 2.5 lakh crore for liquidity.
- Daily VRR auctions will be held in Mumbai.
- Liquidity Coverage Ratio implementation delayed to 2026.
- RBI monitoring rupee stability closely.
- Concerns raised by banks about liquidity crisis.
Mumbai, Feb 12 (NationPress) The Reserve Bank of India (RBI) is poised to inject Rs 2,50,000 crore via its Variable Rate Repo (VRR) auction on Wednesday to bolster liquidity in the banking sector.
The central bank has indicated that this figure was determined after evaluating the current liquidity situation.
Additionally, the Reserve Bank confirmed that it will hold daily VRR auctions every working day in Mumbai, with reversals occurring on the following working day, until further notice.
RBI Governor Sanjay Malhotra stated on Friday, following the monetary policy meeting, that the central bank is dedicated to ensuring ample liquidity in the economy and will implement measures to secure lasting liquidity to satisfy system needs.
The governor also noted that the RBI is closely monitoring the rupee and taking necessary actions to maintain the stability of the Indian currency.
A report from Morgan Stanley suggests that the RBI is likely to manage liquidity proactively and may consider additional steps (such as OMO purchases or FX swaps) as liquidity shortages increase toward the end of March. The report warns of a prolonged rate cut cycle if economic recovery remains sluggish, influenced by weaker domestic demand and global uncertainties.
The report supports its claims by referencing the RBI governor's remarks emphasizing the balance between stability and efficiency in regulatory matters. This balance will be taken into account while developing regulations.
In a significant relief for banks, RBI Governor Malhotra revealed that the introduction of the proposed Liquidity Coverage Ratio (LCR) and project financing regulations will be postponed by one year, with implementation not expected before March 31, 2026.
He explained that the previous deadline of March 2025 was inadequate for the proper implementation of these guidelines. The RBI aims to avoid disruption in the financial sector and will facilitate a smooth transition.
Both public and private sector banks had expressed concerns regarding the implementation of these regulations, originally proposed by former RBI Governor Shaktikanta Das, fearing they could trigger a liquidity crisis. Bank leaders raised these concerns with Malhotra soon after he assumed the role of RBI Governor as Das's tenure concluded.
