The liquidity of the banking system turns into a moderate surplus

The banking system has been experiencing a liquidity shortage since December 16^e due to outflow due to advance payments of tax and GST. | Photo credit: PRIYANSHU SINGH

The system typically runs a surplus of ₹1-1.5 lakh crore at the beginning of the month, with government expenditure freeing up liquidity.

The banking system has been experiencing a liquidity shortage since December 16^e due to outflow due to advance payments of tax and GST. This prompted the RBI to announce liquidity injection measures.

The liquidity surplus is only modest (surplus of ₹23,865 crore and ₹17,335 crore as of January 1, 2026 and December 31, 2025, respectively) despite the RBI’s liquidity injection measures OMO (open market operation) purchase of government bonds (G-Secs) of ₹1 lakh crore and a three-year USD/INR Buy Sell swap of $5 billion euro last month to inject sustainable liquidity into the system and the cent.

Liquidity injection measures

Further, the central bank has initiated a fresh round of liquidity injection measures: OMO purchase auctions of G-Secs for a total amount of ₹2 lakh crore in four tranches of ₹50,000 crore each (on December 29, 2025, January 5, 2026, January 12, 2026 and January 22, 2026) and USD/INR Buy/Sell Swap Auction of $10 billion for a three-year term, held on January 13, 2026.

V Rama Chandra Reddy, Finance Head of Karur Vysya Bank, said, “Liquidity in the system is driven by two players – the RBI and the Government of India. The government temporarily keeps the excess liquidity with the RBI. This can create a tightness. But the liquidity is released towards the end of the month or at the beginning of the month when the government spends money… Moreover, as the RBI’s future sales in dollars mature, the liquidity is affected.

“Normally, there should be a surplus of ₹1-1.5 lakh crore at the beginning of the month. For example, in early December 2025, the banking system had a surplus of liquidity of ₹2.5-2.7 lakh crore. Now the surplus is very subdued.” He expects the comfortable liquidity environment to return by the end of January.

Published on January 2, 2026