Finance Desk – As a new government prepares to take charge, there’s a buzz of optimism among banks regarding the liquidity conditions.
But first let know, what is liquidity in banking world, it means how much cash banks have on hand to meet immediate demands. When banks have a shortage of this cash, it’s called a liquidity deficit.
In the past few months, banks have been tight on cash. This was because the government hadn’t been spending as much money, also, there were cash outflows due to payments related to the Goods and Services Tax (GST).
To help banks manage, RBI injecting money into the banking system through something called Variable Rate Repo (VRR) auctions.
A repo auction is a process where the central bank (like the RBI) lends money to commercial banks to ensure they have enough liquidity.
In May, the RBI conducted 11 of these auctions, adding up to nearly ₹9 trillion—making it the largest infusion in this year.
With the new government, banks expect once the new government starts its operations and begins its spending, the cash flow within the banking system will improve.
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