These measures are likely done to take system liquidity to 1% of the net demand and time liabilities (NDTL) and offset the impact of GST outflows – typically around the 20th of each month.
The RBI will also conduct two OMOs of Rs 20,000 each on April 22 and April 29, which were announced in the first week of April.
This is in line with statements of the RBI governor to support liquidity and keep it in sufficient surplus. “We are watchful and provide sufficient liquidity so that this transmission of policy rates into the interest rate happens quickly. About 1% of NDTL is the kind of surplus we are looking at,” RBI governor Sanjay Malhotra said in his post policy press conference.
Net Demand and Time Liabilities (NDTL) is a crucial financial metric used by the RBI to assess banks liquidity. The RBI uses NDTL to calculate and monitor various regulatory ratios, such as the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
“They (the RBI) want to take system liquidity at 1% of NDTL and to a surplus of Rs 2 lakh crore to ease transmission of rates. They seem to want the transmission to happen quickly and not later,” said Gaura Sen Gupta, chief economist at IDFC First Bank.Monthly GST outflows will also add pressure on system liquidity, which has seen a daily average surplus of Rs 1.7 lakh crore in April. This is a sharp reversal from a deficit of as much as Rs 3 lakh crore seen in January, RBI data showed.“GST outflows happen around the 20th of each month, which would put pressure on liquidity. These announcements align with the strategy of the RBI to get system liquidity in a comfortable surplus,” said Sakshi Gupta, principal economist at HDFC Bank.
Banking system liquidity sees outflows of approximately Rs 1 lakh crore during the monthly GST outflows, according to IDFC First Bank.
