<p><em>By Bhaskar Dutta</em></p><p>Indian banking sector liquidity turned to surplus for the first time in more than three months as aggressive fund injections by the RBI helped erase one of the worst-ever cash crunches in the financial system.</p><p>The surplus, measured through banks deploying excess funds with the Reserve Bank of India, was at 717 billion rupees ($8.4 billion) as of March 29, the first such reading since Dec 15, according to the latest RBI data. The value increased further to 894 billion rupees on March 30.</p><p>Analysts have said that abundant liquidity with banks is key for transmission of lower borrowing costs. The RBI reduced interest rates for the first time in almost five years in February, and is widely expected to cut again at its April 9 policy review. Late Tuesday, the RBI announced a fresh round of open market bond purchases worth 800 billion rupees, a move that is set to tilt liquidity deeper into a surplus. </p>.RBI will work with Modi govt for 'Goldilocks conditions', says Governor Sanjay Malhotra.<p>“The RBI’s focus is on transmission, and the liquidity staying in the surplus mode is going to aid that,” said Vivek Kumar, economist at QuantEco Research. “The latest announcement could be a way for the RBI to enable the MPC to signal that they are now going to shift to an accommodative stance in the upcoming policy review,” he added, referring to the RBI’s monetary policy committee, which sets rates. </p><p>The RBI has injected more than $70 billion (Rs 5,995,01 crore) into the banking system since late January to ease the deficit, which was a result of the RBI’s dollar sales aimed at stabilising the rupee and advance-tax payments by corporates. </p><p>The measures are paying off. Over the past week, overnight borrowing costs have eased to below the RBI’s policy rate, while 10-year sovereign bond yields hit a three-year low on Friday. </p><p>Liquidity conditions may ease further in the April-June period following the RBI’s transfer of surplus dividend to the government, estimated at about 2.6 trillion rupees (Rs 2,60,000 crore), according to Gaura Sen Gupta, chief economist at IDFC First Bank. </p>
<p><em>By Bhaskar Dutta</em></p><p>Indian banking sector liquidity turned to surplus for the first time in more than three months as aggressive fund injections by the RBI helped erase one of the worst-ever cash crunches in the financial system.</p><p>The surplus, measured through banks deploying excess funds with the Reserve Bank of India, was at 717 billion rupees ($8.4 billion) as of March 29, the first such reading since Dec 15, according to the latest RBI data. The value increased further to 894 billion rupees on March 30.</p><p>Analysts have said that abundant liquidity with banks is key for transmission of lower borrowing costs. The RBI reduced interest rates for the first time in almost five years in February, and is widely expected to cut again at its April 9 policy review. Late Tuesday, the RBI announced a fresh round of open market bond purchases worth 800 billion rupees, a move that is set to tilt liquidity deeper into a surplus. </p>.RBI will work with Modi govt for 'Goldilocks conditions', says Governor Sanjay Malhotra.<p>“The RBI’s focus is on transmission, and the liquidity staying in the surplus mode is going to aid that,” said Vivek Kumar, economist at QuantEco Research. “The latest announcement could be a way for the RBI to enable the MPC to signal that they are now going to shift to an accommodative stance in the upcoming policy review,” he added, referring to the RBI’s monetary policy committee, which sets rates. </p><p>The RBI has injected more than $70 billion (Rs 5,995,01 crore) into the banking system since late January to ease the deficit, which was a result of the RBI’s dollar sales aimed at stabilising the rupee and advance-tax payments by corporates. </p><p>The measures are paying off. Over the past week, overnight borrowing costs have eased to below the RBI’s policy rate, while 10-year sovereign bond yields hit a three-year low on Friday. </p><p>Liquidity conditions may ease further in the April-June period following the RBI’s transfer of surplus dividend to the government, estimated at about 2.6 trillion rupees (Rs 2,60,000 crore), according to Gaura Sen Gupta, chief economist at IDFC First Bank. </p>