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Surplus liquidity of banks may dip on tax outflows
June 12, 2023
The surplus liquidity in the banking system is likely to decline to around 1.5 lakh crore over the next few days from the current level of ₹2.1 lakh crore on account of advance tax and goods and services tax (GST) payments and higher currency demand in rural areas amid crop sowing season, economists and analysts said.
The net liquidity in the banking system, as represented by the amount of money absorbed by the Reserve Bank of India (RBI) from the system, jumped to ₹2.59 lakh crore on June 4 from ₹47,484 crore on May 22.
This surge in surplus liquidity over the past few days was driven by the deposit of ₹2,000 notes withdrawn from circulation last month in banks, the redemption of government bonds, and higher month-end spending by the government.
“In a week, we have advance tax and excise payments. Also, during the agriculture season, there is usually currency leakage in the system, which means people tend to hold currency in the rural sector. Liquidity can change significantly over a period of days,” said Abheek Barua, Chief Economist, HDFC Bank.
The last date for payment of advance tax and goods and services tax is June 15 and June 20, respectively.
Analysts expect the surplus liquidity to come down to around ₹1.3-1.5 lakh crore by month-end. Though RBI does not target any particular level of liquidity in the banking system, it is comfortable with surplus liquidity hovering at ₹1.1 to 1.5 lakh crore range, analysts said.
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