India's banking system liquidity has tightened sharply towards a zero position, driven by elevated Government of India (GoI) balances, Reserve Bank of India foreign exchange operations and rising cash demand ahead of the festive season, a report by Axis Bank's Economic Research team showed on Saturday, IANS reported.

Source: IANS via IANS Live

According to the report, analysing the latest shifts in banking system liquidity and funding conditions, liquidity has tightened markedly towards zero, with overnight rates up and liquidity management turning back to the Variable Rate Repo (VRR) window. 'A chunk of this is largely on the swelling of GoI balances — these tend to fall in early December for a few days. However, this is likely to be offset by increased demand for currency notes around the festival season, as well as ongoing FX intervention,' the report said.

Source: IANS via IANS Live

Near zerosystem liquidity position, per Axis Bank research
3.2% of NDTLdurable liquidity after forex and cash drains
Early Decemberseasonal window when GoI balances usually fall

The tightening is on account of drains through RBI forex operations and demand for currency notes, which have taken durable liquidity to 3.2 per cent of Net Demand and Time Liabilities (NDTL), though the tightness in actual liquidity owes to elevated GoI balances, the report said. It noted that, going by seasonal patterns, this reverses for a time in early December, creating a window of easy liquidity — but demand for currency notes in the festival season, coupled with retention of withdrawn notes, will likely keep liquidity low.

Source: IANS via IANS Live

These drains translate directly into deposits, the report warned, meaning the wedge between deposit and credit growth is likely to reopen: with fading liquidity, deposit growth is likely to come back below credit growth, and bank funding conditions are likely to worsen further, over and above any rate recalibration in play. Increases in market interest rates have already been widely noted, also driven by forwards amid excess US dollar supply around IPOs, new RBI restrictions and an inversion of covered interest parity, it added.

Source: IANS via NewKerala

Sources: IANS via IANS Live, October 24, 2026; IANS via NewKerala, October 24, 2026; and IANS via NationPress, October 24, 2026, all reporting the Axis Bank Economic Research report on banking system liquidity.

Source: IANS via IANS Live