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Dwindling Excess Cash Lifts India Short Rates and Funding Costs

  • Treasury bill yield, weighted call rate are at three-year high
  • Deficit liquidity unlikely a policy aim, says IDFC FIRST
Excess cash that lenders park with the RBI fell to 536.4 billion rupees ($6.7 billion.) 

Excess cash that lenders park with the RBI fell to 536.4 billion rupees ($6.7 billion.) 

Photographer: Dhiraj Singh/Bloomberg

India’s banking liquidity is set to swing to a deficit for the first time in three years, driving up shorter-term rates and borrowing costs for lenders.

Excess cash that lenders park with the central bank fell to 536.4 billion rupees ($6.7 billion) as of Sept. 19, the lowest level since 2019, the same year there was a shortfall last, according to the Bloomberg Economics India Banking Liquidity Index. A drop in government spending and tax-related outflows fueled the decline, according to economists at IDFC FIRST Bank Ltd. and Kotak Mahindra Bank Ltd.