The Reserve Bank of India (RBI) is set to inject ₹2,50,000 crore into the banking system through its Variable Rate Repo (VRR) auction on Wednesday. The central bank stated that this decision was based on a thorough assessment of liquidity conditions.
To ensure adequate liquidity, the RBI will conduct daily VRR auctions on all working days in Mumbai, with reversals scheduled for the following working day, until further notice.
Commitment to Liquidity and Stability
RBI Governor Sanjay Malhotra reiterated the central bank’s commitment to maintaining sufficient liquidity in the economy. Speaking after the recent monetary policy meeting, he emphasized that the RBI would take necessary steps to ensure durable liquidity to meet system requirements.
Additionally, Malhotra reassured that the RBI was closely monitoring the rupee’s movement and taking all necessary measures to keep the Indian currency stable.
Liquidity Management and Future Outlook
A report by Morgan Stanley highlighted that the RBI is expected to actively manage liquidity and may introduce additional measures, such as Open Market Operations (OMO) purchases and Foreign Exchange (FX) swaps, as liquidity tightens towards the end of March. The report also warned that if domestic demand remains weak and global uncertainties persist, the risk of an extended rate cut cycle could increase.
Referring to regulatory policies, the report noted that the RBI Governor emphasized the balance between financial stability and efficiency while formulating regulations.
Relief for Banks: LCR and Project Financing Norms Deferred
In a significant relief for banks, Governor Malhotra announced that the implementation of the proposed Liquidity Coverage Ratio (LCR) and project financing norms would be deferred by a year, pushing the deadline to March 31, 2026.
Malhotra explained that the initial deadline of March 2025 did not provide adequate time for smooth implementation. The decision aims to prevent disruptions in the financial system and allow a seamless transition.
Both public and private sector banks had opposed the early implementation of these norms, fearing they could lead to a liquidity crunch. Banking heads had raised concerns with Malhotra soon after he assumed office as RBI Governor, following the tenure of former Governor Shaktikanta Das.
With these measures, the RBI seeks to ensure financial stability while addressing liquidity challenges in the banking sector.
