

RBI’s pile-up of government bonds is extraordinary but could it help build infrastructure?
The Reserve Bank of India’s (RBI) balance sheet shows that the amount of government paper (including treasury bills) held as on 28 February was ₹21.34 trillion. It was ₹15.58 trillion in March 2025. With RBI’s recently announced open market operations (OMOs), which will probably continue this month, the amount will only increase.
The increase so far of ₹5.76 trillion in RBI holdings of government paper is remarkable. An increase of this scale has never been witnessed earlier. Is there an explanation?Through OMOs, RBI is buying securities from banks to help augment their liquidity.
This is usually carried out when liquidity is under pressure, which has been the case this year for a various reasons. First, growth in bank deposits has been weak due to a migration of funds to mutual funds. Second, growth in credit has been faster.
Further, RBI has been selling dollars in the market at various moments to stabilize the rupee. This sucks out domestic liquidity, which is then replenished through the purchase of government paper. Note that the rupee weakened by about 7% from 85.60 against the dollar on 2 April 2025 to 91.68 on 6 March 2026.
RBI holdings of government paper have increased; this is tantamount to deficit monetization. But income on securities adds to its surplus, which is transferred to the Centre. Can this surplus be used for loans to private infra projects? The history of RBI involvement in supporting budgets is quite interesting.
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