India’s bank liquidity surplus hits all-time high riding flood of dollar deposits

MUMBAI: India’s banking system liquidity surplus has jumped to a record high, with surpassing levels witnessed in the aftermath of Covid-19, as lenders collected more dollars than expected under the central bank’s deposit scheme.

Bank liquidity surplus stood at 9.7 trillion rupees ($102.67 billion) as of September 3, the highest ever recorded surplus, surpassing the 9.2 trillion rupees registered in September 2021.

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Indian banks raised $127.23 billion through non-resident foreign-currency deposits announced by the , and most of the amount has already been swapped with the central bank resulting in a sharp spike in rupee liquidity.

The surplus complicates the RBI’s job of managing liquidity and overnight rates, with Nomura noting that the RBI is facing a problem of plenty.

“While some of the surplus…will be offset by higher cash in circulation during the upcoming festive season, maturity of forwards, and due to any potential RBI FX intervention, the RBI may have to employ a panoply of liquidity absorption tools to mop up this surplus,” Nomura economists and Aurodeep Nandi said in a note.