RBI Governor Sanjay Malhotra has said the massive surplus liquidity in India's banking system will be absorbed within the current financial year itself (FY27). He said factors such as currency leakage, the Reserve Bank's liquidity operations and banks' reserve requirements would gradually absorb a substantial part of the surplus. He noted that there is a leakage of over Rs 3 lakh crore from the currency in circulation front every year, and added that reductions will also happen via forex sell-buy swaps, the Reserve Bank of India's open market operations, VRRs (variable reverse repo) operations and also spot interventions done to support the rupee.
The governor said banking system liquidity had increased substantially during August and September following the recent measures undertaken to attract capital inflows. System liquidity, as measured by the net position under the liquidity adjustment facility (LAF), stood at an average daily surplus of Rs 5.9 lakh crore since the last MPC meeting in August 2026. The average daily net absorption under the liquidity adjustment facility increased to Rs 5.8 lakh crore in August and further to Rs 7.8 lakh crore in September, from Rs 1.2 lakh crore in July 2026. The measures taken to absorb liquidity combined with quarterly advance tax outflows moderated the surplus liquidity in September.
He said the Reserve Bank conducted 55 variable rate reverse repo (VRRR) auctions, including 2 term VRRR auctions and OMO sales amounting to Rs 1 lakh crore since the August 2026 policy. On the large inflows under the FCNR(B) deposit scheme, he said banks should not rush to deploy the funds and should undertake proper due diligence before lending. He said the strong growth in credit deployment was already showing that banks had started using the FCNR(B) funds, but given the size of the inflows, their deployment should be prudent.
