Liquidity in the banking system has slipped into its deepest deficit in almost six months, inflating borrowing costs, as outflows due to corporate advance taxes and the Reserve Bank of India's likely actions to stabilise the rupee have drained lenders of funds.
As of September 16, the RBI infused ₹68,785.94 crore into the banking system, the most since March 24, central bank data showed. An injection of funds by the RBI into the banking system indicates tight liquidity conditions.
An ET report last week said advance tax collections in the first half of this fiscal year have increased 20% on-year to ₹3.54 trillion.
«Advance taxes have gone out and GST is coming up, so there can be some tightness of liquidity. Having said that, in about 10 days or so, liquidity will be coming back into the system. In our view, the RBI would be happy with a liquidity range of say minus ₹50,000 crore to plus ₹50,000 crore from a broader perspective,» Indranil Pan, chief economist, Yes Bank, said.
«While the advance tax outflows and the GST are relatively normal factors where the flows will come back into the system, the bigger concern from a structural liquidity perspective is the currency sale by the RBI,» Pan said.
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The rupee, which has been weakening versus the US dollar over the past couple of weeks due to higher crude oil prices, settled at a record closing low of 83.27 per dollar on Monday. The RBI is said to have been intervening in the currency market through dollar sales to curb excessive volatility in the exchange rate. Dollar sales by the central bank have caused a drain of rupee liquidity from the banking system.