The Reserve Bank of India (RBI) has taken a major step to control excessive liquidity in the Indian banking system. The central bank on Thursday completed the first phase of sale of government securities under Open Market Operation (OMO). In this process, RBI accepted bids worth ₹ 50,000 crore from investors and banks, due to which such a huge amount from the banking system has been deposited directly with RBI.
RBI According to the data released by, government bonds of different maturities were sold in this auction. The highest bid of ₹18,840 crore was accepted for the 8.28% interest rate bond of 2032, whose cut-off yield was 7.0090%. Bonds worth ₹12,645 crore of 2030 with 5.77% interest rate and ₹1,005 crore of 2030 with 7.61% interest rate were sold. Bonds worth ₹7,005 crore of 2029 with 7.59% interest rate, ₹7,255 crore of 2029 with 6.79% interest rate and ₹3,250 crore of 2031 with 6.68% interest rate were accepted.
Why did RBI have to withdraw money from the market?
As of September 16, an estimated ₹7.38 lakh crore of excess cash (liquidity surplus) had accumulated in the country’s banking system. This huge overflow of money into the banking system was mainly due to two reasons:
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- FCNR (FCNR-B) Deposits: There was a huge increase in foreign currency deposits, which banks swapped with the RBI to get huge amounts of rupees.
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- Government expenditure: Salary and pension payments to government employees at the end of the month also brought huge cash into the system.
Due to excess liquidity, the risk of inflation increases in the market, to control which the Reserve Bank had to resort to OMO sale.
What is the future plan?
The Reserve Bank has announced OMO sales of a total of ₹1 lakh crore to balance banking liquidity, which is to be completed in three tranches. After raising ₹50,000 crore in the first tranche, the remaining two tranches of ₹25,000-₹25,000 crore each will be held on September 21 and September 28 respectively. With this step, the cash flow in the banking system is expected to return to normal levels in the coming days.
