India's central bank moves to drain surplus liquidity as banks park record sums overnight
The Reserve Bank of India's internal working group recommended keeping the overnight call rate as its operating target and scrapping 14-day main liquidity auctions, published 6 August 2025. Separately, Governor Sanjay Malhotra said surplus liquidity should drain within the financial year through currency leakage, swaps and open market operations, with a cash reserve ratio hike held as a last resort. Liquidity is estimated at around Rs 4.98 trillion (about €48 billion) according to RBI data cited by Rediff.
Bottom line — Malhotra expects surplus liquidity to drain within FY27, with the CRR hike kept as a least-preferred tool.
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The working group said the 14-day variable rate reverse repo main auction saw banks bid only 0.18 of the notified amount on average in 2024, so it recommended replacing it with 7-day operations and shorter tenors.
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Rediff reports State Bank of India calling CRR use for active liquidity management 'expensive to administer', while HSBC read the RBI's reluctance to hike the CRR as a sign it is 'not in a hurry to use blunt tools'.
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Karur Vysya Bank's treasury head V R C Reddy said the absence of a CRR hike and open market sale suggests the RBI is comfortable continuing with reverse repos, buy-sell swaps and sterilisation.
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The RBI's overnight reverse repo auction drew Rs 2.55 trillion (about €24.5 billion) against a notified Rs 3 trillion (about €29 billion), at a weighted average rate of 5.49 per cent, per Rediff.
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According to the Economic Times, the working group's recommendation to keep the overnight call rate as target drew a muted market response, with the outlet listing the call-money share of overnight volume at about 2 per cent.
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Newsonair reports the RBI absorbed Rs 71,971 crore (about €6.9 billion) through an overnight reverse repo auction at 5.24 per cent, against surplus liquidity it puts at Rs 4.92 lakh crore (about €47 billion), and attributes the surplus to foreign currency deposit inflows and month-end government spending.