Banking System Liquidity Hits Record High on FCNR(B) Flows

Mumbai, Sep 3 (PTI) Surplus liquidity in the banking system has surged to a record high of Rs 9.71 lakh crore, boosted by flows received under the FCNR (B) scheme of the Reserve Bank of India (RBI).

According to the RBI's data, systemic surplus liquidity stood at a record high of Rs 9.71 lakh crore as on September 2. The surplus liquidity had touched Rs 9.21 lakh crore on September 5, 2021.

The RBI's special forex measures mobilised USD 136.38 billion by August 31, including USD 127.23 billion through FCNR(B) deposits, USD 5.26 billion through OFCBs and USD 3.89 billion via ECBs, according to the RBI's data.

The FCNR(B) window was closed a month early on August 31 due to the strong response, while the ECB/OFCB facility remains open till December 31 and inflows through these routes are expected to pick up.

The mobilisation brought foreign currency into the banking system, while the subsequent swaps with the RBI provided rupee liquidity to banks.


Besides FCNR(B) inflows, month-end government expenditure, including payments towards salaries and pensions, also added to liquidity in the banking system.

Money market experts and economists are of the view the central bank may deploy certain tools apart from variable rate reverse repo (VRRR) auctions, such as incremental cash reserve ratio (ICRR) hike, open market sales, and market stabilisation scheme (MSS).

Bank of Baroda Research report said the RBI has already stepped up VRRR auctions, announcing operations cumulatively worth Rs 53.5 lakh crore between August 6 and September 2.

Banks, however, have preferred shorter-duration operations amid robust credit demand.

On Thursday, the central bank also announced the three-day day VRRR auctions for a notified amount of Rs 7 lakh to be held on September 4.

"On a review of current and evolving liquidity conditions, it has been decided to conduct a Variable Rate Reverse Repo (VRRR) auction on Friday, September 4," the RBI said in a release.