The Reserve Bank of India’s (RBI) decision to inject ₹1.9 lakh crore into the banking system has been welcomed by financial markets, with bank stocks witnessing gains on Thursday. Both private and public sector banks, along with Non-Banking Financial Companies (NBFCs), saw an uptick in stock prices following the announcement.
The Nifty PSU Bank index surged 1.46% to an intraday high of 5,976.75, while the Nifty Bank index climbed 0.72%, reaching 48,839.10. The Nifty Private Bank index also recorded gains of up to 0.67% in early trading.
As part of its liquidity-enhancing measures, the RBI announced open market operations (OMO) to purchase government securities worth ₹1 lakh crore in two tranches of ₹50,000 crore each. The first auction is set for March 12, with the second scheduled by March 18. Additionally, the central bank has planned a dollar-rupee buy/sell swap auction worth $10 billion for 36 months, to be conducted on March 24.
These measures are expected to provide additional liquidity in anticipation of tight financial conditions towards the end of the fiscal year. Tax outflows and banks’ efforts to meet lending targets had raised concerns over a liquidity crunch, prompting the RBI to step in. The central bank stated that it would “continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions.”
Market analysts have noted that the RBI’s move will not only address short-term liquidity constraints but also contribute to durable liquidity stability. Teresa John, an economist at Nirmal Bang Institutional Equities, observed that while liquidity is likely to be neutral by the end of March, it could shift to surplus as India enters the next fiscal year unless the RBI continues selling dollars in the foreign exchange market. She also pointed out that corporate bond spreads had tightened despite recent rate cuts, signaling an improvement in market transmission.
Samiran Chakraborty, chief economist at Citi, estimated that the liquidity surplus could rise to ₹1.2 lakh crore by the end of March, and when accounting for outstanding Variable Rate Reverse Repo (VRRR) operations, it could reach ₹3 lakh crore.
The RBI’s decision follows its 25 basis point rate cut in February, which was preceded by liquidity-boosting measures. Liquidity conditions have remained tight since mid-December, mainly due to tax outflows and the central bank’s dollar sales in the forex market to stabilize the rupee. In February, the RBI had already injected ₹1.7 lakh crore to support banking system liquidity.
In a significant relief for banks, RBI Governor Sanjay Malhotra also announced the postponement of the implementation of new Liquidity Coverage Ratio (LCR) and project financing norms by a year, deferring them to March 31, 2026. The decision followed consultations with banks, which had opposed the earlier deadline of March 2025 set by former RBI Governor Shaktikanta Das.
Banks had raised concerns that enforcing the LCR norms as scheduled would have forced them to divert over ₹4 lakh crore into government bond purchases, restricting their ability to extend credit to corporates and individuals. This could have hindered economic growth by limiting access to funds for businesses and consumers.
The postponement comes as a relief to financial institutions, with Malhotra emphasizing that the RBI aims to ensure a smooth transition without disrupting the financial system. The decision underscores the central bank’s commitment to balancing liquidity management with economic stability, reinforcing confidence among market participants.
–IANS
