MUMBAI — The RBI’s move to inject Rs 1.9 lakh crore has come as a big
positive for banks, which is reflected in the rise in the stock prices of both
private and public sector banks, as well as Non-Banking Financial Companies
(NBFCs) on Thursday.
The Nifty PSU Bank index rose 1.46 per cent, or 86.3 points
to hit an intraday high of 5,976.75, while the Nifty Bank index increased 0.72
per cent, adding 349.15 points to hit an intraday high of 48,839.10. Similarly,
the Nifty Private Bank index recorded a gain of up to 0.67 per cent in morning
trade.
As part of the measures to infuse more liquidity in the
banking system, the RBI has announced that it will conduct open market
operation (OMO) purchases of government securities worth Rs 1 lakh crore in two
tranches of Rs 50,000 crore each. The first auction will be held on March 12
and the second by March 18.
Besides, the central bank has also decided to hold a
dollar-rupee buy/sell swap auction of $10 billion for 36 months to be held on
March 24.
The measures are expected to infuse additional liquidity of
Rs 1.9 lakh crore. The move comes ahead of an anticipation of tight liquidity
conditions by the end of the current financial year (FY25) amid tax outflows
and banks rushing to meet targets.
The RBI said it "will continue to monitor evolving
liquidity and market conditions and take measures as appropriate to ensure
orderly liquidity conditions," it said in a press release.
These measures will not only address frictional liquidity
tightness in March but also the issue of durable liquidity which has tightened
of late, according to Teresa John, economist at Nirmal Bang Institutional
Equities.
"While liquidity will likely be neutral by end March,
it may move to surplus as we enter into FY26 unless we continue to see dollar
sales by the RBI," John said.
Transmission is also likely to improve significantly, she said,
adding that corporate bond spreads had tightened despite rate cuts.
Samiran Chakraborty, chief economist at Citi, estimates that
durable liquidity would now move towards Rs 1.2 lakh crore surplus by
end-March. Including outstanding VRRs, liquidity surplus could be about Rs 3
lakh crore, he estimated.
The Monetary Policy Committee had cut rates by 25 basis
points at its meeting in February, preceding which, the central bank had
announced measures to infuse liquidity.
According to economists, liquidity conditions have been
tight since mid-December largely due to tax outflows, dollar sales by the RBI
in the foreign exchange market to stabilise the rupee.
The RBI had earlier injected another Rs 1.7 lakh crore to
enhance liquidity in the banking system in February
In a big relief for banks, RBI Governor Sanjay Malhotra had
also announced the postponement of the proposed Liquidity Coverage Ratio (LCR)
as well as project financing norms by a year. These will not to be implemented
before March 31, 2026.
He said that the step has been taken as the earlier deadline
March 2025 announced by his predecessor, did not give sufficient time for the
implementation of these guidelines.
The step was taken after the RBI held close consultations
with banks, who were staunchly opposed to the implementation of the new norms
as they would lead to a liquidity crunch.
Malhotra has made it clear that the RBI does not want to
cause disruption in the financial system and will ensure a smooth transition,
he added.
Both public sector and private sector banks had opposed the
implementation of these norms, announced by former RBI Governor Shaktikanta
Das, as they feared that it would cause a liquidity crisis in the financial
system.
The heads of banks had raised the issue with Malhotra,
shortly after he took over as RBI Governor with Das’ tenure coming to an end.
These norms were earlier scheduled to come into effect on
April 1, 2025.
According to treasury officials of banks, implementing the
LCR norms would in effect mean over Rs 4 lakh crore would have to be diverted
from banks to buy government bonds instead of extending credit to corporates
and individuals to boost demand in the economy and spur growth.
