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Liquidity deficit in Banks of 1.5lakh crore
September 22, 2023
India’s banking system has been dealt a significant blow, with a liquidity deficit of nearly ₹1.5 lakh crores on Wednesday. According to financial experts, this shortfall can be largely attributed to outflows related to advance tax payments and preparations for Goods and Services Tax (GST) remittances.
The Reserve Bank of India’s (RBI) daily liquidity report indicates a substantial increase in the deficit compared to the previous week’s ₹1.2 lakh crore. This surge is alarming, considering that it comes at a time when the banking sector is grappling with a slow economic recovery from the COVID-19 pandemic.
The banking system’s liquidity is crucial for its smooth functioning, impacting both the short-term and long-term lending rates. A deficit could lead to a rise in borrowing costs, affecting the common man and businesses alike.
The impact of this liquidity deficit is already visible in the money market, with the overnight call money rate, a key measure of liquidity, spiking to 3.50% on Wednesday, from 3.20% a week ago.
According to economists, multiple strategies can be employed to manage this liquidity crunch, including open market operations, term repo operations, and cash reserve ratio (CRR) cuts. However, each of these measures comes with its own set of implications, and a careful balance needs to be maintained.
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