Surplus Liquidity in the Indian Banking System

In September 2026, surplus liquidity in India’s banking system has crossed ₹11 lakh crore, creating challenges for the Reserve Bank of India (RBI) in maintaining short-term interest rates around its policy rate.

What is Surplus Liquidity?

  • It refers to excess cash and liquid funds held by commercial banks beyond their requirements for:
    • Day-to-day operations and withdrawals;
    • Lending needs; and
    • Statutory reserve requirements.

Why has Liquidity Increased?

  • Indian banks mobilised around $136.4 billion from non-residents and foreign lenders, largely through the special Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit window and swap arrangements.
  • Conversion of foreign currency into rupees injected substantial liquidity into the domestic financial ....
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